Working Paper: NBER ID: w27602
Authors: Andreas Haller; Stefan Staubli; Josef Zweimüller
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.
Keywords: Disability Insurance; Welfare Effects; Policy Reform; Fiscal Multipliers
JEL Codes: H53; H55; J14; J21; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stricter DI eligibility rules (H53) | Lower income losses (J17) |
| Stricter DI eligibility rules (H53) | Reduced DI program costs (H53) |
| Lower DI benefits (H53) | Welfare cost of rolling back DI program is lower (H53) |
| Loosening eligibility rules and increasing benefits (I38) | Improved welfare outcomes for DI recipients (I38) |