Creator: Holmes, Thomas J. and Ohanian, Lee E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 501 Abstract:
As part of compensation, municipal employees typically receive promises of future benefits. Motivated by the recent bankruptcy of Detroit, we develop a model of the equilibrium size of a city and use it to analyze how pay-with-promises schemes interact with city growth. The paper examines the circumstances under which a death spiral arises, where cutbacks of city services and increases in taxes lead to an exodus of residents, compounding financial distress. The model is put to work to analyze issues such as the welfare effects of having cities absorb pension risk and how unions affect the likelihood of a death spiral.
关键词: Retiree health benefits, Death spiral, City growth, Pay with promises, Defined benefit pension plans, and Detroit 学科: R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics, H75 - State and Local Government: Health; Education; Welfare; Public Pensions, H20 - Taxation, Subsidies, and Revenue: General, and R51 - Finance in Urban and Rural Economies