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Determinants of government underfunded public pension liabilities in the OECD

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  • Paul Klumpes

Abstract

Underfunded government liabilities for public pensions constitutes a major expenditure in the management of social programmes in many countries, but to date has not attracted much attention from accountants as it does not easily fit within an accrual-based accounting system. This paper discusses major measurement problems associated with this liability and then examines determinants of variations in projected flow-based funding patterns among OECD governments. Alternative 'behavioural persistence' and 'regression to the mean' hypotheses about the determinants of underfunding practices are formulated and tested using an OECD data set describing the financial and socio-economic characteristics of government-sponsored public pension systems in these countries. Consistent with the behavioural persistence hypothesis, cross-sectional variations are found to be associated with the funding ratio and the rate of taxation required to keep government debt constant. Variations in underfunding practices across the sample are also sensitive to cultural differences in attitude towards public pension accountability between continental European and Anglo-American countries.

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  • Paul Klumpes, 2003. "Determinants of government underfunded public pension liabilities in the OECD," European Accounting Review, Taylor & Francis Journals, vol. 12(3), pages 489-513.
    • Handle: RePEc:taf:euract:v:12:y:2003:i:3:p:489-513
    DOI: 10.1080/0963818032000083522
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    1. Paul van den Noord & Richard Herd, 1993. "Pension Liabilities in the Seven Major Economies," OECD Economics Department Working Papers 142, OECD Publishing.
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    1. Vafeas, Nikos & Vlittis, Adamos, 2018. "Independent directors and defined benefit pension plan freezes," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 505-518.

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