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Disability Testing and Retirement

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Author Info
Helmuth Cremer (University of Toulouse)
Jean-Marie Lozachmeur (University of Toulouse)
Pierre Pestieau (University of Liège and CORE)

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Abstract

We study the design of retirement and disability policies and illustrate the often observed exit from the labor force of healthy workers through disability insurance schemes. In our model, two types of individuals, disabled and leisure-prone ones, have the same disutility for labor and cannot be distinguished. However, they are not counted in the same way in social welfare. We determine first- and second-best optimal benefit levels and retirement ages. Then we introduce the possibility of testing that can sort out disabled workers from healthy but retirement-prone workers. We show that such testing can increase both social welfare and the rate of participation of elderly workers; in addition disabled workers are better taken care of. It is not optimal to test all applicants. Surprisingly, the (second-best) solution may imply later retirement for the disabled than for the leisure-prone. In that case, the disabled are compensated by higher benefits.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Economic Analysis & Policy.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages: 1608-1608
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Handle: RePEc:bep:eapcon:v:7:y:2007:i:1:p:1608-1608

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Related research
Keywords: disability insurance social security retirement age

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

References listed on IDEAS
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  1. Parsons, Donald O., 1996. "Imperfect 'tagging' in social insurance programs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 183-207, October. [Downloadable!] (restricted)
  2. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-34, February. [Downloadable!] (restricted)
  3. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December. [Downloadable!] (restricted)
    Other versions:
  4. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May. [Downloadable!] (restricted)
    Other versions:
  5. Maurice Marchand & Pierre Pestieau & María Racionero, 2003. "Optimal redistribution when different workers are indistinguishable," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 911-922, November. [Downloadable!] (restricted)
  6. Fleurbaey, M. & Maniquet, F., 1998. "Optimal Income Taxation: an Ordinal Approach," Papers 9865, Catholique de Louvain - Center for Operations Research and Economics.
    Other versions:
  7. Desmet, Raphael & Jousten, Alain & Perelman, Sergio & Pestieau, Pierre, 2003. "Micro-Simulation of Social Security Reforms in Belgium," IZA Discussion Papers 735, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Jonathan Gruber & David A. Wise, 2002. "Social Security Programs and Retirement Around the World: Micro Estimation," NBER Working Papers 9407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August. [Downloadable!] (restricted)
  10. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2004. "Optimal Retirement and Disability Benefits with Audit," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 278-, September.
  11. Boadway, R. & Marchand, M. & Pestieau, P. & Del Mar Racionero, M., 2001. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Papers 2001/25, Catholique de Louvain - Center for Operations Research and Economics.
    Other versions:
  12. David H. Autor & Mark G. Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 71-96, Summer.
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  13. Schroyen, Fred, 1997. "Pareto efficient income taxation under costly monitoring," Journal of Public Economics, Elsevier, vol. 65(3), pages 343-366, September. [Downloadable!] (restricted)
  14. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June. [Downloadable!] (restricted)
  15. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Blackwell Publishing, vol. 88(1), pages 25-50.
  16. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Parsons, Donald O, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Comment," American Economic Review, American Economic Association, vol. 81(5), pages 1419-26, December. [Downloadable!] (restricted)
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