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Trends in the Economic and Revenue Impacts of Public Pensions
In the second half of the third part of the Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk: 2020 Update Results blog, we will examine the trends in the economic and revenue impact of public pensions.
Now that we have conducted the Unintended Consequences study twice using the latest data available each time – 2016 data in 2018 and 2018 data in 2020 – we are able to examine the trends. As mentioned earlier, the impact of pension fund investment on the economy increased between 2016 and 2018. In 2016, the economy grew by $1,088 for each $1,000 investment of pension fund assets. In 2018, the same figure is $1,362 – a 25 percent increase. This increase may reflect the size of pension fund assets and changes in the relative impact of other variables in the model.
Trends in the Economic and Revenue Impacts of Public Pensions
In the second half of the third part of the Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk: 2020 Update Results blog, we will examine the trends in the economic and revenue impact of public pensions.Now that we have conducted the Unintended Consequences study twice using the latest data available each time – 2016 data in 2018 and 2018 data in 2020 – we are able to examine the trends. As mentioned earlier, the impact of pension fund investment on the economy increased between 2016 and 2018. In 2016, the economy grew by $1,088 for each $1,000 investment of pension fund assets. In 2018, the same figure is $1,362 – a 25 percent increase. This increase may reflect the size of pension fund assets and changes in the relative impact of other variables in the model.
Trend in economic impact: Figure 2 compares the economic impact of investment of pension fund assets and spending of pension checks in 2018 versus 2016. It shows that in 2018 the impact on the economy of both investment of assets and spending of pension checks was greater than it was in 2016. The growth in the impact of investment of assets was especially significant. In 2016 the impact of investment of assets on the economy was $587.8 billion. In 2018, the same figure was $872.4 billion, a 48 percent increase. The impact of spending of pension checks on the economy was also greater in 2018 than in 2016 ($837.0 billion versus $757.8 billion).
Trend in revenue impact: Figure 3 compares the state and local tax revenue impact of investment of pension fund assets and spending of pension checks in 2016 versus 2018. In 2018 the impact of investment of assets as well as spending of pension checks on state and local revenues was greater than in 2016. The difference in the impact of investment of assets between the two years was especially significant. In 2016 the impact of investment of assets on state and local revenues was $125.7 billion, and in 2018, the same figure was $178.8 billion, a 42 percent increase. The impact of spending of pension checks on revenues was also greater in 2018 than in 2016 ($162.6 billion versus $151.9 billion).
Trend in states' net revenue positions: Figure 4 shows the number of states whose public pensions were net revenue positive in 2016 and 2018. Net revenue positive means that pensions in those states produced more in revenues than taxpayers contributed to the pensions. In 2016, 38 states were net revenue positive and 12 states net revenue negative. In 2018, the number of net revenue-positive states increased to 40 and the number of net-revenue-negative states decreased to 10. Beyond the aggregate picture shown in the figure, our analysis shows that the majority of the 40 states that were net revenue positive in 2018 became more revenue positive during the 2016– 2018 period.
The analysis also shows some changes in states' net revenue position between 2016 and 2018. Four states – Kansas, Maryland, Oklahoma, and West Virginia – that were net revenue negative in 2016 became net revenue positive in 2018. Two states – Kentucky and Vermont – that were net revenue positive in 2016 became net revenue negative in 2018. Eight states – Connecticut, Hawaii, Indiana, Louisiana, Nevada, New Hampshire, Rhode Island, and Utah – continued to be net revenue negative from 2016 to 2018, although in all but two cases, the gap between revenues generated by pensions and taxpayer contributions to those pensions has narrowed.
Stay tuned for next week's last blog installment: Unintended Consequences 2020 Update: Conclusions.
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