Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits

91 Pages Posted: 4 Aug 2020 Last revised: 4 Dec 2022

See all articles by Andreas Haller

Andreas Haller

University of Zurich

Stefan Staubli

University of Calgary

Josef Zweimüller

University of Zurich

Date Written: July 2020

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.

Suggested Citation

Haller, Andreas and Staubli, Stefan and Zweimüller, Josef, Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits (July 2020). NBER Working Paper No. w27602, Available at SSRN: https://ssrn.com/abstract=3665872

Andreas Haller (Contact Author)

University of Zurich

Rämistrasse 71
Zürich, CH-8006
Switzerland

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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