Pay with Promises or Pay as You Go? Lessons from the Death Spiral of Detroit

Público
Creator Series Issue number
  • 501
Date Created
  • 2014-07-14
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.

Subject (JEL) Palabra Clave Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
Publisher
  • Federal Reserve Bank of Minneapolis
Resource type DOI
License

Relaciones

En Collection:
Última modificación

Contenido Descargable

Descargar PDF

Zipped Files

Download a zip file that contains all the files in this work.

Elementos