From a new NBER Working Paper by by Philippe Ruh and Stefan Staubli
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.
From James M. Poterba, Steven F. Venti, David A. Wise, "The Long Reach of Education: Health, Wealth and DI Participation:"
Between 1972 and 2012, the
fraction of the population with low levels of education has declined dramatically and the
fraction with higher levels of education has increased. This change in the composition
of educational attainment in the population places downward pressure on disability
rates. Our estimates suggest that over the past two decades, the upward pressure on
DI rates arising from increasing educational disparities in health, wealth and
employment has been roughly offset by the downward pressure arising from the
declining fraction of the population with low levels of education.
