The Economics of Local Government Pensions and Pension Funding

Abstract

This paper presents a simple analytical model of optimum pension size and funding practices for a local government. The criterion used is that the attainable frontier of labor-service purchases, for two periods, should be pushed out as far as possible given that there is a fixed endowment of tax revenues in each period. After the characteristics of the frontier are developed, the relationship between optimizing decisions and pension-funding practices is examined. Comparative-static results which may be fruitful for future empirical work are then derived.