The political economy of unfunded public pension liabilities

This paper applies a public choice approach to the problem of unfunded pension liabilities and adopts the methodology of Congleton and Shughart (1990) to model underfunding of state-level public pension plans using the median voter theorem, along with the theory of “capture” by special interest groups, and a combined model of the two. With panel data from 2001 to 2009, the paper finds that the combined model provides the strongest explanation for the current levels of unfunded liabilities; hence, both median voter preferences and special interest group influence are affecting political outcomes. The special interest group model slightly outperforms the median voter model in direct comparisons.     

Social Security: a financial appraisal for the median voter

Several explanations have been proposed for why voters continue to support unfunded social security systems. Browning (1975) suggests that the extremely large unfunded pension systems of most democracies depend on the existence of a voting majority composed of middle-aged and older people who fail to fully internalize the cost of financing the system. In fact, when voting, economically rational workers consider only their current and future contributions to the system and their expected pension benefits--not their past contributions, which they regard as sunk costs. If, for a majority of voters, the expected continuation return from social security exceeds the return from alternative assets, an unfunded social security system is politically sustainable. This article explores the validity of Browning's proposition by quantifying the returns that U.S. voters in presidential elections from 1964 to 1996 have obtained, or expect to obtain, from Social Security. Did "investments" in Social Security outperform alternative forms of investment, such as mutual funds or pension funds, for a majority of the voters? What can be expected for the future? The U.S. Social Security system redistributes income within age cohorts on the basis of sex, income, and marital status. To account for some of these features, the median voter is represented by a family unit whose members--a husband who accounts for 70 percent of household earnings and a wife who accounts for 30 percent--make joint economic and voting decisions. Thus, retirement and survival benefits paid out to the spouse of an insured worker can be included in the calculation of Social Security returns. Interval estimates of voters' family incomes from the U.S. Census Bureau were used to obtain the median voter's household earnings. The median voter's age is derived from the ages of those who voted in presidential elections, not from the ages of the entire electorate. The median voter's contributions to Social Security are the product of the joint employer/employee Old-Age and Survivors Insurance (OASI) tax rate and employee earnings. Data on actual contributions are available for median voters in the 1964 to 1976 elections; Social Security Administration (SSA) estimates are used for future tax rates and average wage growth rates. Data on actual old-age, retirement, and survivor benefits, as well as estimates of future benefits, are also available from SSA. Analysis of ex-post returns from "investing" in Social Security and from a buy-and-hold strategy applied to three alternative assets--the Standard & Poor's Composite Index (S&P), the Dow Jones Industrial Average (DJIA), and U.S. government bonds--shows surprising results. In 1964 and 1968, Social Security largely outperformed the other three assets. In 1972, Social Security and the stock market performed almost equally. In 1976, however, the median voter would have been better off in the stock market. The expected returns for median voters in later elections cannot be directly compared with realized returns from alternative assets. However, estimates range from 5.7 percent in 1984 to 7.0 percent in 1996 and thus compare favorably with average returns of 5.6 percent for S&P, 5.3 percent for DJIA, and 2.1 percent for government bonds over the 1964-1996 period. Although these findings must be taken with caution since they compare ex-post returns, they show that, despite a continuous reduction in profitability, Social Security still represents a safe, high-return asset for a majority of families.     

Budget Deficits in the States: Illinois

During FY 2009 and FY 2010, the State of Illinois was faced with significant fiscal challenges. The national recession was adversely impacting the state's economy, while the state had been struggling since the last recession with operating budget deficits and large unfunded pension liabilities. In the spring of 2009, the Governor's Office of Budget and Management estimated that in the absence of any intervention, there would be a $4.3 billion budget deficit in FY 2009 and a $7.3 billion budget shortfall in FY 2010. This paper discusses the magnitude and nature of Illinois' fiscal problems and the factors that have contributed to this situation. It also discusses Governor Quinn's proposed budget for FY 2010, as well as the legislative response. Although the state passed a capital budget and an operating budget, the outlook for the future remains uncertain. The operating budget significantly relies on one-time revenue and funding sources (including $3.4 billion in debt) and the state has approximately $100 billion in unfunded accrued liabilities for pensions and other postemployment benefits.     

Unfunded Mandates and Fiscal Structure: Empirical Evidence from a Synthetic Control Model

An unfunded expenditure mandate occurs when governments are required to provide a good or service by a higher level of government without an accompanying revenue source. There are no empirical studies providing causal evidence on the fiscal influence of intergovernmental mandates. This article examines Florida's 1990 constitutional Amendment 3, which sought to limit unfunded state mandates on municipal and county governments. The synthetic control method, an empirical technique for drawing causal inferences from case studies, estimates the effect of Amendment 3 on state expenditures and total transfers to local governments. The results indicate that state expenditures increased by an annual average of 9.5 percent, while state transfers to all local governments were unaffected. However, the municipalities protected by Amendment 3 saw intergovernmental revenue from the state decrease by 10 percent annually, which suggests that remaining mandates likely targeted special districts, encouraging the fragmentation of local public service delivery.     

财政分权与地方政府行政管理支出——基于中国省级面板数据的实证研究

行政管理支出具有双重属性:过多的支出不利于经济增长,使地方政府在竞争中处于劣势而不利于官员的晋升,同时有违中央政府的宏观政策目标;但能直接提高地方政府官员个人的福利水平。所以,地方政府及官员对行政管理支出存在两难选择。本文利用我国30个省(自治区、直辖市)1998—2006年的面板数据对财政分权与行政管理支出的关系进行实证研究和稳健性检验。主要结论是:在中国特色财政分权的制度环境下,地方政府在财政支出自由裁量权扩大时,总体效应是加大了行政管理支出的规模。同时,行政人员规模与行政管理支出存在显著的正相关关系。地区经济发展水平、资源禀赋、社会结构等因素对行政管理支出也有显著性的影响。在公共财政体制改革的背景下,其他公共财政支出项目(社会保障支出除外)对行政管理支出存在显著的"挤出"效应。     

论中国利益群体参与公共政策制定存在的问题

处于社会转型期的中国,如何处理利益群体参政问题关乎改革开放的历史进程和社会稳定。中国的渐进式改革路径在保持社会稳定方面发挥了重要的作用,但是这种渐进式改革更多地表现在经济领域,而政治领域的改革,特别是公民参政权的落实则略显迟滞和不够。由此引起的矛盾和问题使人们产生了诸多不满和怨恨,因此探讨中国利益群体在参与公共政策制定上存在的问题,对于进一步完善中国利益群体参政的路径、提高政府的执政能力和管理创新能力,其理论价值和现实意义不言而喻。     

Spreading the Wealth

The new American president promoted the value of “spreading the wealth around” as an election theme, providing low-income families with tax breaks, rebates, and credits. The practice of using federal income taxes to re-distribute wealth, which sometimes reflects the noblest of goals, frequently generates significant unintended harm. Prominent among those unplanned casualties is a reduction in charitable giving: American voluntary wealth transfers (e.g., charitable contributions) are in danger of being crowded out by mandatory transfers (e.g., federal taxes) used to redistribute wealth. This paper considers the social and economic costs of raising taxes that crowd out charity.     

STATE URBAN POLICY: "New" Federalism In Virginia, New Jersey and Florida

The recent rediscovery of federalism has left the nation's governors with expanded responsibility and limited federal support. In return, they were promised greater fiscal flexibility, a real partnership in program design, and protection from unfunded mandates. However, states seem unwilling to offer the same guarantees to their cities that they sought from the federal government, even as they expand city responsibilities and limit state aid. This paper explores the extent to which Virginia, New Jersey and Florida have provided the fiscal flexibility and partnership, except in the area of economic development, but the diminished fiscal capacity of some distressed communities relative to their suburban counterparts render them unable to benefit from such efforts.     

Mill and the Value of Moral Distress

People are sometimes distressed by the bare knowledge that lifestyles are being practised or opinions held which they take to be immoral. Is this distress to be regarded as harm for the purposes of Mill's Harm Principle? I argue, first, that this is an issue that is to be resolved not by analysis of the concept of harm but by reference to the arguments in On Liberty with which the Harm Principle is supported. Secondly, I argue that reference to those arguments makes it clear beyond doubt that, since Mill valued moral confrontation and the shattering of moral complacency as means to social progress, he must have regarded moral distress as a positive good rather than as a harm that society ought to intervene to prevent. Thirdly, I relate this interpretation to Mill's points about temperance, decency and good manners. I argue, finally, that my interpretation is inconsistent with Mill's underlying utilitarianism only if the latter is understood in a crudely hedonistic way.     

Risk Assessment in Environmental Policymaking

A problem in policymaking for prevention of harm to persons and the environment concerns the probability of harm occurring—that is, the measure of risk involved. Policymakers have almost always sought to calculate the risk involved in proposed courses of action. Their methods have often been irrational and their estimates erroneous. Explicit analysis of risk to society and systematic methods for estimating it emerged with the advent of science as more reliable procedures for prediction and decision-making. However, as with many other forms of analysis, the assessment of risk has carried its own risk—namely an undue reliance on logical quantitative techniques which fail to address the root causes of public concern and apprehension. Common-sense assessments of risk tell us more what risks people regard as acceptable and risks arouse anxiety and protest. Carnage from accidents on the nation's highways arouse much less apprehension than nuclear accidents even though actual risk from automobiles is much greater than injury or death from nuclear reactors. The following paper makes the case that the art and science of risk assessment will fall short of social and political realities until the psychological and cultural aspects of risk receive more adequate attention.     

Economic Growth and Social Capital

Recent interdisciplinary theoretical work has suggested that social capital, or the interpersonal trust of citizens, plays an important role in explaining both the efficiency of political institutions, and in the economic performance of contemporary societies. This paper examines the relationship between social capital and economic growth in a sample of thirty-four countries over the period 1970 to 1992, within the framework of a modified neo-classical model of economic growth. The findings suggest that social capital has an impact on growth which is at least as strong as that of human capital or education, which has been the focus of much of the recent work on endogenous growth theory. It appears to have about the same impact on growth as catch-up or the ability of poorer nations to adopt technological innovations pioneered by their richer counterparts.     

The State of American Federalism, 1994-1995

Federalism, as a concept and as a reality, received assistancefrom a variety of sources during 1994–1995. Opinion pollsrevealed a public strongly supportive of shifts in the balanceof power between federal and state governments. The new Republican-controlledCongress, bent on devolving authority to the states, busieditself with an ambitious legislative agenda. The DemocraticPresident pursued his principles of federalism and intergovernmentalrelations by supporting the unfunded mandates bill and by increasingthe use of the administrative waiver. The U.S. Supreme Courtbolstered federalism with its rulings in cases such as Lopez,a state challenge to the federal Gun-Free School Zones Act.The new mood in Washington, D.C. was complemented by state leadersanxious to take on the challenges of a rebalanced federal system     

State Policies Affecting Cities and Counties in 1992

Most states did not make major changes in their policies affecting cities and counties in 1992. California and Maryland are the two leading exceptions. As many states continued to experience fiscal stress, fourteen states cut aid to local governments, while ten states increased aid. Some important changes also occurred in local revenue authority, sorting out responsibilities, and restrictions on unfunded mandates.     

THE SUBURBAN MOVEMENT TO LIMIT GROWTH: REASONS FOR SUPPORT IN ORANGE COUNTY

Several studies have shown that suburban residents favor growth controls. It is usually argued that high-status residents and those living in growing comniunities want limited growth. This paper examines an alternative perspective; support for growth limits broadly found among individuals who perceive community problems. Specific reasons for wanting limited growth, however, vary in importance among different social group. These hypotheses are confirmed by 1,009 Orange County, California residents. Support for growth limits is strongest among those who perceive rapid growth, are dissatisfied with c i t y government, and perceive service problems. Environniental reasoris for wanting limited growth are mentioned most frequently. These concerns are especially noted by the high-status residents and nonfiscal conservatives. Economic reasons for limited growth are stated by a large minority, and are especially of interest to the lowstatus residents and fiscal conservatives. The results indicate public concerns vary among social groups comprising the citizen support for suburban growth limits. The implications for suburban policy formation and implementation are discussed.     

An Options Pricing Method for Calculating the Market Price of Public Sector Pension Liabilities

State and local public sector employee pensions are widely known to be underfunded, but pension financial reports do not reveal the true extent of funding shortfalls. Pension accounting methods assume that plan investments can earn high returns without taking any account of the market risk involved. This gives a false sense of the financial strength of public sector pensions and understates risks to taxpayers. Since accrued pension benefits are legally and constitutionally protected, any pension funding shortfalls must be met by taxpayers. This benefit guarantee amounts to an effective put option on plan investments, the cost of which is not disclosed under current actuarial accounting. This paper uses an options pricing method to calculate the market value of taxpayer guarantees underlying public sector pensions. The average funding ratio declines from 83 percent under actuarial accounting to 45 percent under this options pricing approach. The typical state has unfunded public pension liabilities three times larger than its explicit government debt. Public pension shortfalls equal an average of 27 percent of state gross domestic product, posing a significant fiscal challenge in coming years. Accurate measures of public pension liabilities are important for policy makers, taxpayers, investors considering the economic environment in which to start or locate a business, and bond purchasers considering the risk premia appropriate to municipal government bonds that are in practice subordinate to public pension liabilities.     

Health Insurance in Transition: The Health Insurance Portability and Accountability Act of 1996

The Health Insurance Portability and Accountability Act (HIPAA)of 1996 (PL. 104–191) brings the federal government fullyinto insurance regulation for the first time. Despite the Republicanmajority's rhetoric about state control, election-year politicstrumped federalism. HIPAA's immediate impact oncoverage maybe modest, but its ultimate significance is great because itcreates a template for more farreaching federal involvementin regulating insurance. HIPAA amends the Employee RetirementIncome Security Act (ERISA), the Public Health Service Act,and the Internal Revenue Code, creating a complicatedstructuredictated by efforts to avoid an unfunded mandate. The historyof insurance regulation and the activity surrounding the enactmentof PL. 104–191 suggest that HIPAA continues an incrementalprocess of transition between state insurance regulation andfederal oversight driven by recent and accelerating changesin the structure of the health-care marketplace.     

略论"文化台独"

"文化台独"是一种以确立台湾独立性为价值取向,以"去中国化"为特征,为"台独"服务的社会文化思潮。从其发展趋势来看,影响已浸入到台湾社会的各个阶层,危害性也越来越大,一旦成为台湾的主流意识,必将对两岸的和平统一造成严重的危害。因此,必须高度关注,坚决遏制"文化台独"思潮的蔓延。中华文化与台湾文化同出一脉,源远流长。民进党当局推行"本土化""、去中国化,"这是要从根本上割断台湾与祖国的联系,是不得人心的,其图谋也是不能得逞的。     

Political Institutions, Public Policy and Economic Growth

The argument of the Rise and Decline of Nulions (RADON) opens up a new area of important social science research: to understand the social and political setting of economic growth. The paper tests the argument that institutionalization leads fo the decline of nafions slowing down the rate of economic growth. Employing several indicators on economic growth and controlling for a number of factors the finding with regard to the OECD-nations is that the Olson emphasis on institutionalization is confirmed.     

从GDP锦标赛到二元竞争:中国地方政府行为变迁的逻辑——基于1998—2006年中国省级面板数据的实证研究

在中国经济持续30多年高速发展中,地方政府是发展的主要动力,但从上世纪90年代末以来,地方政府在发展经济中所产生的负面效果越来越明显,中央出台了一系列政策去调整和引导地方政府行为,促使地方政府增加社会保障开支以促进社会公平。采用1998—2006年中国省级面板数据进行定量分析以考察地方政府行为的影响因素和变化。研究显示,地方政府在社会保障的财政开支上主要受当地经济发展状况和中央政府的重视程度影响;地方政府在回应中央政府政策调整的过程中,其行为并不同于"晋升锦标赛"所归纳的以GDP增长为主要目标的一元竞争模式,而是演变为在社会公平和经济发展的双重目标下,地方政府分别参与不同目标竞争的二元竞争模式。在既往对中国地方政府行为考察的政治激励和财政激励基础上提出了影响地方政府行为的激励结构、中央与地方的互动关系和地方所处的社会经济情况的分析框架,通过对地方政府行为变化的分析提出二元竞争模式以弥补"GDP晋升锦标赛模式"对地方政府行为解释力的不足。     

Coercive Federalism and the Search for Constitutional Limits

This article explores several constitutional bases for questioningthe federal government's use of unfunded mandates and otherforms of coercive intergovernmental regulation. The "anti-coercion"and "anti-commandeering" principles of the Tenth Amendment areproposed as general arguments against these forms of regulation.The constitutional requirement of "uniformity" attached to indirecttaxation, the "anti-discrimination rule" in the area of intergovernmentaltax immunity, and the "equality rule", which stems from theunwritten tradition of maintaining equality among the states,are developed as additional bases for striking down federallaws that distribute mandate burdens disproportionately amongthe states.