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Public pension accounting rules and economic outcomes

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  • Naughton, James
  • Petacchi, Reining
  • Weber, Joseph

Abstract

We find a negative association between a state׳s fiscal condition and the use of discretion in applying Governmental Accounting Standards Board (GASB) rules to understate pension funding gaps. We also find that the use of discretion is negatively associated with states’ decisions to increase taxes and cut spending. In addition, we find that the funding gap understatement is positively associated with higher future labor costs. Importantly, this association is primarily attributable to the GASB methodology, which systematically understates the funding gap. This suggests that the GASB approach is associated with policy choices that have the potential to exacerbate fiscal stress.

Suggested Citation

  • Naughton, James & Petacchi, Reining & Weber, Joseph, 2015. "Public pension accounting rules and economic outcomes," Journal of Accounting and Economics, Elsevier, vol. 59(2), pages 221-241.
    • Handle: RePEc:eee:jaecon:v:59:y:2015:i:2:p:221-241
    DOI: 10.1016/j.jacceco.2015.02.002
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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