Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?

92 Pages Posted: 4 Aug 2020

See all articles by Andreas Haller

Andreas Haller

Norwegian School of Economics (NHH) - Department of Economics

Stefan Staubli

University of Calgary

Josef Zweimüller

University of Zurich

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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. Hence, to roll back the Austrian DI program, policy makers should implement tighter DI eligibility rules rather than lower DI benefits. An application of our framework to the DI system of the U.S. suggests that DI eligibility rules are too strict and DI benefits are too low.

Keywords: disability insurance, screening, benefits, policy reform

JEL Classification: H53, H55, J14, J21, J65

Suggested Citation

Haller, Andreas and Staubli, Stefan and Zweimüller, Josef, Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?. IZA Discussion Paper No. 13539, Available at SSRN: https://ssrn.com/abstract=3665099 or http://dx.doi.org/10.2139/ssrn.3665099

Andreas Haller (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Stefan Staubli

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Josef Zweimüller

University of Zurich

Rämistrasse 71
Zürich, CH-8006
Switzerland

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