Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design

Philippe Ruh and Stefan Staubli

No 11667, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Most countries reduce Disability Insurance (DI) benefits for beneficiaries earning above a specified threshold. Such an earnings threshold generates a discontinuous increase in tax liability – a notch – and creates an incentive to keep earnings below the threshold. Exploiting such a notch in Austria, we provide transparent and credible identification of the effect of financial incentives on DI beneficiaries' earnings. Using rich administrative data, we document large and sharp bunching at the earnings threshold. However, the elasticity driving these responses is small. Our estimate suggests that relaxing the earnings threshold reduces fiscal cost only if program entry is very inelastic.

Keywords: disability insurance; labor supply; benefit notch; bunching (search for similar items in EconPapers)
JEL-codes: H53 H55 J14 J21 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2018-07
New Economics Papers: this item is included in nep-ias, nep-lma and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - revised version published in: American Economic Journal: Economic Policy, 2019, 11(2), 269-300

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Related works:
Journal Article: Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design (2019)
Working Paper: Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design (2018)
Working Paper: Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design (2018)
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