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Social program substitution and optimal policy

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  • Lawson, Nicholas

Abstract

The large size and rate of growth of the US Disability Insurance (DI) system makes it important to understand the factors that influence the decision to apply for DI. In a context of imperfect DI screening, the generosity of other social programs can play a role in this decision, and one empirically relevant factor is the availability and generosity of Unemployment Insurance (UI) benefits. UI's impact on DI applications and enrollment has been ignored in welfare analyses of UI, but I show that it leads to significantly altered results: the optimal level of unemployment benefits increases by about 50%, as more generous UI prevents workers from applying for DI, with significant cost savings to the government. The same logic applies to a wide variety of other social programs and contexts, and in a more general model I show that the impact of any such program on welfare can be expressed in terms of its redistributional effect and its effects on the tax base and on enrollment on other programs.

Suggested Citation

  • Lawson, Nicholas, 2015. "Social program substitution and optimal policy," Labour Economics, Elsevier, vol. 37(C), pages 13-27.
    • Handle: RePEc:eee:labeco:v:37:y:2015:i:c:p:13-27
    DOI: 10.1016/j.labeco.2015.08.005
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    Cited by:

    1. David S. Lee & Pauline Leung & Christopher J. O’Leary & Zhuan Pei & Simon Quach, 2021. "Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance," Journal of Labor Economics, University of Chicago Press, vol. 39(S2), pages 455-506.
    2. Nicholas Lawson, 2017. "Liquidity Constraints, Fiscal Externalities, and Optimal Tuition Subsidies," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 313-343, November.
    3. De Brouwer, Octave & Tojerow, Ilan, 2023. "The Growth of Disability Insurance in Belgium: Determinants and Policy Implications," IZA Discussion Papers 16376, Institute of Labor Economics (IZA).
    4. Zweimüller, Josef, 2018. "Unemployment insurance and the labor market," Labour Economics, Elsevier, vol. 53(C), pages 1-14.
    5. Avram, Silvia & Brewer, Mike & Salvatori, Andrea, 2018. "Can't work or won't work: Quasi-experimental evidence on work search requirements for single parents," Labour Economics, Elsevier, vol. 51(C), pages 63-85.
    6. Besarion C. Meskhi & Mikhail A. Izotov & Yuliya S. Knyazeva & Tatyana V. Simonyan, 2016. "Formation of the System of Management of Supporting University on the Basis of Strengthening of Communication Component," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 64-70.

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    More about this item

    Keywords

    Fiscal interactions; Program substitution; Optimal unemployment insurance; Disability insurance; Sufficient statistics;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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