Corruption and Public Pension Underfunding

36 Pages Posted: 12 Feb 2021

See all articles by Cheol Liu

Cheol Liu

KDI School of Public Policy and Management

John L. Mikesell

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Tima T. Moldogaziev

Pennsylvania State University

Date Written: November 10, 2020

Abstract

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, states could have annually saved pension benefit by 10.24% (or, $1,894.64 per recipient), increased ARC by 4.40%, elevated actual contribution by 8.46%, and improved investment return by 4.72%, in the period 2003-2013, compared to those at the mean of corruption. Improved insulation of pension operations from corrupt officials, as well as reduction of public corruption, can make a significant contribution to reducing the pension funding crisis that haunts American state and local government.

Suggested Citation

Liu, Cheol and Mikesell, John L. and Moldogaziev, Tima T., Corruption and Public Pension Underfunding (November 10, 2020). KDI School of Pub Policy & Management Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3782912 or http://dx.doi.org/10.2139/ssrn.3782912

Cheol Liu (Contact Author)

KDI School of Public Policy and Management ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

John L. Mikesell

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States
812-855-0732 (Phone)
812-877-7802 (Fax)

Tima T. Moldogaziev

Pennsylvania State University ( email )

324 Pond Lab
School of Public Policy
University Park, PA 16802
United States
16802 (Fax)

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