Corruption exacerbates state pension underfunding through all relevant aspects: a more generous pension benefit promise, lower actuarially required contributions (ARC), lower actual contributions, and poorer investment performance. By reducing corruption by one standard deviation from the mean,...

This paper demonstrates that capital markets take surrounding environments in the states into consideration when determining prices on local debt, above and beyond the underlying features of municipal bonds. We empirically show that corruption premium exists in the US municipal bond market....