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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 11667

Classification and Topics

• Classification: Wirtschaft ; National Government Expenditures and Welfare Programs ; Social Security and Public Pensions ; Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination ; Labor Force and Employment, Size, and Structure
• Subject: disability insurance ; labor supply ; benefit notch ; bunching

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ruh, Philippe ; Staubli, Stefan
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/185127
• Last update: 10.03.2025, 11:46 AM CET