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Erschienen in: Public Choice 1-2/2020

05.08.2019

Electoral incentives and Public Employees’ Retirement Systems in Brazilian municipalities

verfasst von: Bernardo P. Schettini, Rafael Terra

Erschienen in: Public Choice | Ausgabe 1-2/2020

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Abstract

This paper tests whether Brazilian mayors manipulate the funding policies of Public Employees’ Retirement Systems (PERS) owing to electoral motivations, using an unexplored dataset containing the statements of contributions prepared by municipal governments that we match to four nationwide elections. In Brazil, PERS are active in more than 2000 municipalities and must collect contributions from public-sector employees and local governments to meet their defined benefit promises. The institutional context provides variation in both reelection incentives and the funding of PERS that allows for credible estimation: term limits and close races generate exogenous variation in incentives, and the large increases in contribution rates mandated by a national pension reform, implemented by municipalities with different lags, provide the necessary variation in the funding practices. Overall, the regression discontinuity estimates support the hypothesis that mayors seeking reelection in competitive environments reduce the flows of funding to municipal PERS. Moreover, the results confirm the notion that while politicians have benefited from the changing legislation and a lack of supervision in the past, less room for strategic maneuvering has been open recently.

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Fußnoten
1
In defined benefit schemes, the amount a retiree or a pensioner receives is determined by a formula that typically takes into account the employee’s earnings history and length of service, rather than depending directly on investment returns, as in a defined contribution plan. In effect, many defined benefit schemes are financed on a pay-as-you-go basis. The Brazilian PERS are defined benefit schemes that, since 1998, must adopt measures to promote actuarially required balances. Nonetheless, they are not fully funded in general.
 
2
The strategic manipulation of fiscal policy also can arise from partisan politics (Persson and Svensson 1989; Alesina and Tabellini 1990). Pettersson-Lidbom (2001), using data from Swedish local governments, finds evidence in line with that reasoning. However, partisanship does not seem to be a good starting point for the analysis of Brazilian municipal politics. Klašnja and Titiunik (2017) argue that the country’s mayors lack party loyalty. Moreover, Sakurai and Menezes-Filho (2011) show that ideology is not a good predictor of fiscal policies at the Brazilian local level.
 
3
Inman (1982) notes that if the capitalization of pension obligations into house prices is not complete and voters can move to avoid paying future retirement benefits, the funding levels would converge to zero. One observes partial funding policies in the American data because public employees demand compensating wage increases when the local government underfunds their pension promises. Glaeser and Ponzetto (2014) develop a dynamic model with asymmetric information between ordinary voters and public employees about pension promises, but in which essentially the same factors interact to generate similar qualitative conclusions.
 
4
In the 2016 elections, for example, fewer than 100 municipalities had more than 200,000 voters.
 
5
In Brazil, proportional representation selects federal, district and state deputies, as well as town counselors.
 
6
Act # 9.717, November 1998, played an important role in regulating the organization and operation of PERS. The preparation of budget, financial and actuarial statements is one of the many requirements that became effective in later years. Legally, the government cannot access the accounts of the system’s management entity nor borrow from the pension fund. The federal government has undertaken regular audits since 2004.
 
7
Moreover, the regular contributions from the government cannot exceed two times the amount paid by the employees. The exceptions are the transfers to the management entity related to the amortization of the actuarial deficit. The government also must cover the financial shortfalls of the retirement system to assure the payment of benefits.
 
8
Two main results emerge from the same analysis applied to subsequent elections: first, the indicators of manipulation show that fewer mayors underfunded the retirement system in the election year; and, second, the regression results indicate that voters did not reward reelection candidates who reduced the flow of funds temporarily.
 
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Metadaten
Titel
Electoral incentives and Public Employees’ Retirement Systems in Brazilian municipalities
verfasst von
Bernardo P. Schettini
Rafael Terra
Publikationsdatum
05.08.2019
Verlag
Springer US
Erschienen in
Public Choice / Ausgabe 1-2/2020
Print ISSN: 0048-5829
Elektronische ISSN: 1573-7101
DOI
https://doi.org/10.1007/s11127-019-00701-8

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