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Crawling Up the Cash Cliff? Behavioral Responses to a Disability Insurance Reform

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  • Deuchert, E.
  • Eugster, B.

Abstract

Disability insurance systems are widely criticized for their inherent work disincentives. This paper evaluates the effects of a reform of the Swiss DI system that aims to lower pensions for a group of existing DI beneficiaries and introduces an additional cash cliff to the pension schedule. The effects on earnings and employment are zero but the disability degree increases on average by 3 percentage points and 75% of individuals manage to keep their old pension level. We partially identify income and substitution effects employing the principal stratification framework. The income effect ranges from 9 to 20 percentage pints in terms of employment, and 136 to 3,135 CHF (ca. 50% of previous earnings) in terms of earnings. The substitution effect is smaller and suggests that individuals reduce employment by a maximum of 3.7 percentage points and earnings by a maximum of 1,001 CHF (if any).

Suggested Citation

  • Deuchert, E. & Eugster, B., 2016. "Crawling Up the Cash Cliff? Behavioral Responses to a Disability Insurance Reform," Health, Econometrics and Data Group (HEDG) Working Papers 16/21, HEDG, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:hectdg:16/21
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    References listed on IDEAS

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    More about this item

    Keywords

    disability insurance; work disincentives; income and substitution effects; partial benefit system;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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