TY - JOUR
T1 - Public Corruption and Pension Underfunding in the American States
AU - Liu, Cheol
AU - Mikesell, John
AU - Moldogaziev, Tima T.
N1 - Funding Information:
The author(s) disclosed receipt of the following financial support for the research, authorship and/or publication of this article: The authors received financial support from KDI School of Public Policy and Management.
Publisher Copyright:
© The Author(s) 2021.
PY - 2021/8
Y1 - 2021/8
N2 - Unfunded public pension obligations represent a great challenge for policy makers in the American states. We posit that a part of pension underfunding relates to the level of public corruption. Empirical findings in the article show that funding ratios in public pension funds are inversely related to the incidence levels of corruption in the state, with other fiscal, political, and institutional covariates held constant. We show that this can happen through higher pension benefits, lower actuarially required contributions (ARCs), lower percentage of actual ARC contributions, and poorer investment outcomes. Based on empirical estimates, we find that a reduction of corruption by one standard deviation around the mean would permit the states to save on pension benefits by 10.24% annually (or US$1,894.64 per recipient), increase required ARC by 4.40%, increase actual ARC contributions by 8.46%, and improve investment returns by 4.72%. Therefore, policies to reduce public-sector corruption, or to improve the insulation of pension funds in relatively more corrupt environments, can make a significant contribution toward tackling the public pension underfunding crisis in the American states.
AB - Unfunded public pension obligations represent a great challenge for policy makers in the American states. We posit that a part of pension underfunding relates to the level of public corruption. Empirical findings in the article show that funding ratios in public pension funds are inversely related to the incidence levels of corruption in the state, with other fiscal, political, and institutional covariates held constant. We show that this can happen through higher pension benefits, lower actuarially required contributions (ARCs), lower percentage of actual ARC contributions, and poorer investment outcomes. Based on empirical estimates, we find that a reduction of corruption by one standard deviation around the mean would permit the states to save on pension benefits by 10.24% annually (or US$1,894.64 per recipient), increase required ARC by 4.40%, increase actual ARC contributions by 8.46%, and improve investment returns by 4.72%. Therefore, policies to reduce public-sector corruption, or to improve the insulation of pension funds in relatively more corrupt environments, can make a significant contribution toward tackling the public pension underfunding crisis in the American states.
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U2 - 10.1177/0275074021992891
DO - 10.1177/0275074021992891
M3 - Article
AN - SCOPUS:85100889097
SN - 0275-0740
VL - 51
SP - 449
EP - 466
JO - American Review of Public Administration
JF - American Review of Public Administration
IS - 6
ER -