Working Paper: NBER ID: w10792
Authors: Mikhail Golosov; Aleh Tsyvinski
Abstract: The paper analyzes an implementation of an optimal disability insurance system as a competitive equilibrium with taxes. The problem is modeled as a dynamic mechanism design problem in which disability is unobservable. We show that an asset-tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum implements the optimum. The logic behind the result is as follows: we show that an agent who falsely claims disability has higher savings than a truly disabled agent, and an asset test prevents false claimants from receiving disability. We also evaluate welfare benefits of asset testing. For a calibrated economy, we numerically compare the optimal system to the best system without asset testing. We find that gains of asset testing are significant and equal to about 0.65% of consumption.
Keywords: Disability Insurance; Asset Testing; Social Insurance; Welfare Benefits
JEL Codes: E6; H2; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asset testing (H82) | reduction of false claims (K41) |
| asset testing (H82) | higher efficiency in disability insurance system (J65) |
| false claims (Y30) | higher savings (D14) |
| non-disabled individuals receiving benefits (H53) | higher asset levels (G32) |