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Social Program Substitution and Optimal Policy

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  • Nicholas Lawson

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Abstract

A growing literature on substitution between social programs provides consistent evidence that changes in the generosity of one program can lead to changes in enrollment on other programs. However, this evidence has been ignored in welfare analyses of social insurance programs. I demonstrate that substitutions between programs can dramatically alter conclusions about optimal policy, with a particular focus on optimal unemployment insurance (UI) when there is substitution between UI and disability insurance (DI). If more generous UI reduces enrollment on DI, the result is a reduction in government spending on DI, and I show that this effect can significant increase the optimal UI replacement rate from 3% to 85%.

Suggested Citation

  • Nicholas Lawson, 2014. "Social Program Substitution and Optimal Policy," AMSE Working Papers 1417, Aix-Marseille School of Economics, France, revised 16 May 2014.
    • Handle: RePEc:aim:wpaimx:1417
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    References listed on IDEAS

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    2. 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.
    3. Zweimüller, Josef, 2018. "Unemployment insurance and the labor market," Labour Economics, Elsevier, vol. 53(C), pages 1-14.
    4. 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).
    5. 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.
    6. 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.

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    More about this item

    Keywords

    fiscal interactions; program substitution; optimal unemployment insurance; disability insurance;
    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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