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Designing disability insurance reforms: tightening eligibility rules or reducing benefits


Haller, Andreas; Staubli, Stefan; Zweimüller, Josef (2020). Designing disability insurance reforms: tightening eligibility rules or reducing benefits. NBER Working Papers 27602, National Bureau of Economic Research.

Abstract

We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Our analysis suggests that the welfare cost of rolling back the Austrian DI program is lower through tightening eligibility rules than through lowering benefits. Applying our framework to the US DI system suggests that both loosening eligibility rules, and increasing benefits, would be welfare increasing.

Abstract

We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Our analysis suggests that the welfare cost of rolling back the Austrian DI program is lower through tightening eligibility rules than through lowering benefits. Applying our framework to the US DI system suggests that both loosening eligibility rules, and increasing benefits, would be welfare increasing.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:H53, H55, J14, J21, J65
Language:English
Date:July 2020
Deposited On:15 Feb 2021 15:30
Last Modified:15 Feb 2021 15:30
Series Name:NBER Working Papers
Number of Pages:91
OA Status:Closed
Publisher DOI:https://doi.org/10.3386/w27602
Related URLs:https://www.nber.org/papers/w27602

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