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Financial work incentives for disability benefit recipients: Lessons from a randomized field experiment

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  • Buetler, Monika

    ()

  • Lechner, Michael

    ()

  • Thiemann, Petra

    ()

  • Deuchert, Eva

    ()

  • Staubli, Stefan

    ()

Abstract

Disability insurance (DI) beneficiaries lose some of their benefits if their earnings exceed certain thresholds (“cash-cliffs”). When this reduction is too high, this implicit taxation of earnings is considered to be one of the prime reasons for the low outflow from DI. This paper analyzes a conditional cash program that incentivizes work related reductions of disability benefits in Switzerland. A randomized group of DI beneficiaries receive the offer to claim a payment of up to CHF 72,000 (USD 71,000) if they take up or expand employment and reduce DI claims. This paper presents the results of the short-term evaluation by analyzing the first reactions to the announcement of seed capital. Overall, the interest in taking-up the financial incentive is low at only 3%. Individuals close to cash-cliffs react more on seed capital but the overall magnitude is small. Our results suggest that work-disincentives imposed by cash-cliffs are unlikely to be the main driver for low employment and outflow from the Swiss disability insurance system, despite the fact that the partial disability insurance system generates a non-linear budget set and bunching behavior at cash-cliffs prior to the implementation of seed capital.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1406.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1406.

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Length: 33 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:usg:econwp:2014:06

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Keywords: Disability insurance; field experiment; financial incentive;

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  1. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2008. "How are Preferences Revealed?," NBER Working Papers 13976, National Bureau of Economic Research, Inc.
  2. Marie Olivier & Vall Castello Judit, 2011. "Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation," ROA Research Memorandum, Maastricht University, Research Centre for Education and the Labour Market (ROA) 012, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  3. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 2(3), pages 180-212, August.
  4. Hamish Low & Luigi Pistaferri, 2010. "Disability risk, disability insurance and life cycle behavior," IFS Working Papers, Institute for Fiscal Studies W10/11, Institute for Fiscal Studies.
  5. Craig Thornton & Gina Livermore & David Stapleton & John Kregel & Tim Silva & Bonnie O'Day & Thomas Fraker & W. Grant Revell Jr. & Heather Schroeder & Meredith Edwards, 2004. "Evaluation of the Ticket to Work Program Initial Evaluation Report," Mathematica Policy Research Reports, Mathematica Policy Research 3883, Mathematica Policy Research.
  6. David Stapleton & Gina Livermore & Criag Thornton & Bonnie O'Day & Robert Weathers & Krista Harrison & So O'Neil & Emily Sama Martin & David Wittenburg & Debra Wright, 2008. "Ticket to Work at the Crossroads: A Solid Foundation with an Uncertain Future," Mathematica Policy Research Reports, Mathematica Policy Research 6153, Mathematica Policy Research.
  7. Robert R. Weathers II & Jeffrey Hemmeter, 2011. "The impact of changing financial work incentives on the earnings of Social Security Disability Insurance (SSDI) beneficiaries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 30(4), pages 708-728, 09.
  8. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, Elsevier, vol. 95(9), pages 1223-1235.
  9. Craig Thornton & Gina Livermore & David Stapleton & John Kregel & Tim Silva & Bonnie O'Day & Thomas Fraker & W. Grant Revell Jr. & Heather Schroeder & Meredith Edwards, 2004. "Evaluation of the Ticket to Work Program Initial Evaluation Report," Mathematica Policy Research Reports, Mathematica Policy Research 4154, Mathematica Policy Research.
  10. Craig Thornton & Gina Livermore & David Stapleton & John Kregel & Tim Silva & Bonnie O'Day & Thomas Fraker & W. Grant Revell & Jr. & Heather Schroeder & Meredith Edwards, 2004. "Evaluation of the Ticket to Work Program Initial Evaluation Report," Mathematica Policy Research Reports, Mathematica Policy Research 4739, Mathematica Policy Research.
  11. David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 119-124, May.
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