U.S. Public Pension Funding and State Growth Effects

AN ABSTRACT OF THE RESEARCH PROJECT OF ERIC D LENZ, for the MASTER OF SCIENCE degree in ECONOMICS at Southern Illinois University Carbondale. TITLE: U.S. Public Pension Funding and State Growth Effects MAJOR PROFESSOR: Dr. SCOTT GILBERT Does U.S. state pension funding affect real GDP growth rates? Do states that witness higher GDP growth also have better funded pensions? Can one expect less GDP growth when state pensions are poorly funded? My study took the funding ratio of state pension plans, the asset-to-liability ratio, and compared it with real state GDP levels. The methods I used consisted of time series panel data regression analysis using data from the BEA and the U.S. Census Bureau. When predicting changes in real GDP, I found that lagged values of data were more explanatory and a small positive coefficient existed for the funding ratio values. This can be explained as an indicator of efficient allocation of pension assets coinciding with a state’s efficient allocation of public resources. An interesting implication of this relationship is the causation of one variable on another, an avenue requiring more research