This paper shows that defined benefit pension and health care plans are important for firm leverage around the world. While consolidating off-balance sheet post-retirement plans typically increases effectiveleverage by 32%, firms reduce their level of regular debt by only 22 cents for every dollar of projected benefit obligation, yielding overall 23% higher total leverage of plan sponsors compared tosimilar firms without post-retirement plans. The most important driver of substitution rates between regular debt and post-retirement obligations is rule of law, followed by labor market freedom andtaxes, where countries with a better rule of law, less labor market freedom and higher marginal corporate tax rates show higher substitution rates. In contrast, pension guarantee funds and priority of unfunded pension obligations are less important for substitution rates.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

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