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State pension contributions and fiscal stress

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  • SPLINTER, DAVID

Abstract

Fiscal stress pressures state legislators to either raise taxes or cut spending, but public pensions provide a vehicle to postpone tax increases and maintain current spending. I estimate that states cut their pension contributions at seven times the rate of other spending in response to fiscal stress. The cumulative impact of state undercontributions due to fiscal stress explains about 4% of mid-2008 actuarial underfunding. States not paying actuarially required contributions for reasons other than fiscal stress explains an additional quarter of underfunding. As investment returns explain little underfunding, much underfunding appears due to insufficient employee and actuarially required government contributions to keep up with growing pension liabilities.

Suggested Citation

  • Splinter, David, 2017. "State pension contributions and fiscal stress," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(1), pages 65-80, January.
    • Handle: RePEc:cup:jpenef:v:16:y:2017:i:01:p:65-80_00
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    References listed on IDEAS

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    1. Congressional Budget Office, 2010. "Fiscal Stress Faced by Local Governments," Reports 21966, Congressional Budget Office.
    2. Olivia S. Mitchell & Robert S. Smith, "undated". "Public Sector Pension Funding," Pension Research Council Working Papers 94-4, Wharton School Pension Research Council, University of Pennsylvania.
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    Cited by:

    1. Trang Hoang, 2022. "Fiscal competition and state pension reforms," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 41-70, September.
    2. Trang Hoang & Craig S. Maher, 2022. "Fiscal condition, institutional constraints, and public pension contribution: are pension contribution shortfalls fiscal illusion?," Public Budgeting & Finance, Wiley Blackwell, vol. 42(4), pages 93-124, December.
    3. Dashle Kelley, 2014. "The political economy of unfunded public pension liabilities," Public Choice, Springer, vol. 158(1), pages 21-38, January.

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