Public pension accounting rules and economic outcomes
Author(s)Naughton, James; Petacchi, Reining; Weber, Joseph P
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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. Keywords: Public pension; Economic consequences of accounting rules; Real decisions
Journal of Accounting and Economics
Naughton, James et al. “Public Pension Accounting Rules and Economic Outcomes.” Journal of Accounting and Economics 59, 2–3 (April 2015): 221–241 © 2015 Elsevier B.V.