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

Abstract

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. (JEL H55, J14, J31)

Does Tax‐Favored Policy Improve the Profitability of Environmental Protection Firms? An Empirical Study from the Implicit Tax Perspective

“…Prior studies on implicit taxes are dominated by finding tax distortions, which results from different tax treatments. The prior research investigates the effects of implicit taxes on market return on income trusts (Klassen and Mescall 2012), pension scheme (Metzger 2019), disability insurance benefits (Ruh and Staubli 2019), public debt (Blanchard 2019), and the nontax regulations (Fullerton and Muehlegger 2019). All these studies provide compelling investment-level evidence of implicit taxes.…”

Can disability benefits promote (re)employment?

“…Néanmoins, dix ans plus tard, il existe toujours des écarts importants en matière d'emploi entre les personnes handicapées et les autres, et trouver le bon équilibre entre le revenu et l'aide à l'emploi reste un exercice inachevé. L'OCDE a demandé à maintes reprises que l'on développe plus de moyens pour transformer les prestations d'invalidité en un instrument de soutien de l'emploi parallèlement à leur fonction de soutien du revenu (OECD, 2003 [2]), mais cela ne s'est pas entièrement concrétisé.…”

“…The available data only reflect employment outcomes with no details about the reasons for non-employment, which can be due to lacking employment opportunities, incentives, or capacity. The latter can take many forms, including physical or mental impairments, but also other aspects such as inadequate skills and insufficient work experience 2. In some countries with a pension-type disability benefit, such as Austria, France and Slovenia, reporting "retirement"…”

Take-Up and Labor Supply Responses to Disability Insurance Earnings Limits

“…Our work contributes to three strands of the literature. We most directly contribute to the literature on earnings limits in disability insurance (e.g., Maestas and Yin, 2008;Schimmel, Stapleton and Song, 2011;Weathers and Hemmeter, 2011;Kostøl and Mogstad, 2014;Greenberg et al, 2018;Deuchert and Eugster, 2019;Ruh and Staubli, 2019;Zaresani, 2020). This literature finds mixed evidence on labor supply responses to earnings limits.…”

“…Alternative policy approaches adopted in other countries avoid a notch in the benefit schedule by introducing a gradual phaseout of benefits above an earnings threshold. But even under these policy designs, the implicit tax rate may still inefficiently distort labor supply (Kostøl and Mogstad, 2014;Deuchert and Eugster, 2019;Ruh and Staubli, 2019;Zaresani and Olivo-Villabrille, 2022).…”