Abstract

http://ssrn.com/abstract=2199067
 
 

References (16)



 
 

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Public Pension Accounting Rules and Economic Outcomes


James P. Naughton


Northwestern University - Kellogg School of Management

Reining Petacchi


Massachusetts Institute of Technology (MIT) - Sloan School of Management

Joseph Weber


Massachusetts Institute of Technology (MIT) - Sloan School of Management

September 5, 2014


Abstract:     
We provide evidence that the accounting rules prescribed by the Governmental Accounting Standards Board (GASB) and the choices states make when implementing these rules allow states to understate pension funding gaps, especially during times of fiscal stress. We also find that the funding gap understatement is negatively associated with states’ decisions to increase taxes and cut spending, and that these understatements are associated with higher future labor costs. Importantly, we find that the positive association between the funding gap understatement and future labor costs is attributable to the inherent methodology in the GASB rules, which systematically understate the funding gap, and not to opportunistic reporting by state governments. Therefore, it is not only the case that the GASB pension accounting rules pose intergenerational fairness issues (by not requiring sufficient pension contributions), but also that they are associated with policy choices (such as increased labor expenditures) that have the potential to exacerbate future fiscal problems.

Number of Pages in PDF File: 62

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Date posted: January 11, 2013 ; Last revised: September 5, 2014

Suggested Citation

Naughton, James P. and Petacchi, Reining and Weber, Joseph, Public Pension Accounting Rules and Economic Outcomes (September 5, 2014). Available at SSRN: http://ssrn.com/abstract=2199067 or http://dx.doi.org/10.2139/ssrn.2199067

Contact Information

James P. Naughton
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Reining Petacchi (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
100 Main Street
Cambridge, MA 02142
United States
Joseph Peter Weber
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
617-253-4310 (Phone)
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References:  16
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