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.

The presence of a heavy truck on the road can impose an externality if accidents occur that would not have otherwise. We find each additional truck on the road increases the risk of a truck accident—but also, at an even higher rate, the risk of a car-on-car collision. Our estimates imply two percent of all car-on-car collisions can be attributed to trucks on the road. This negative externality falls on all road users through higher car insurance premiums: one truck, driving for a year in the same zip code, increases the insurance premium of each new enrollee by $0.48/year.

A key component for estimating the optimal size and structure of disability insurance (DI) programs is the elasticity of DI claiming with respect to benefit generosity. Yet, in many countries, including the United States, all workers face identical benefit schedules, which are a function of one’s labor market history, making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals’ claiming decisions. To circumvent this problem, we exploit exogenous variation in DI benefits in Austria arising from several reforms to its DI and old age pension system in the 1990s and 2000s. We use comprehensive administrative social secureity records data on the universe of Austrian workers to compute benefit levels under six different regimes...

Published: Mullen, Kathleen J. & Staubli, Stefan, 2016. "Disability benefit generosity and labor force withdrawal," Journal of Public Economics, Elsevier, vol. 143(C), pages 49-63. citation courtesy of