Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185127 
Year of Publication: 
2018
Series/Report no.: 
IZA Discussion Papers No. 11667
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Most countries reduce Disability Insurance (DI) benefits for beneficiaries earning above a specified threshold. Such an earnings threshold generates a discontinuous increase in tax liability – a notch – and creates an incentive to keep earnings below the threshold. Exploiting such a notch in Austria, we provide transparent and credible identification of the effect of financial incentives on DI beneficiaries' earnings. Using rich administrative data, we document large and sharp bunching at the earnings threshold. However, the elasticity driving these responses is small. Our estimate suggests that relaxing the earnings threshold reduces fiscal cost only if program entry is very inelastic.
Subjects: 
disability insurance
labor supply
benefit notch
bunching
JEL: 
H53
H55
J14
J21
Document Type: 
Working Paper

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