Research seminar with Andreas Kostøl
Welcome to our research seminar with Andreas Kostøl, Ph.D. candidate at the Department of Economics, University of Bergen.
Title: Disability Benets, Consumption Insurance, and Household Labor Supply.
Abstract: While a mature literature ﬁnds that Disability Insurance (DI) receipt discourages work, the welfare implications of these ﬁndings depend on two rarely studied economic quantities: the full cost of DI allowances to taxpayers, summing over DI transfer payments, beneﬁt substitution to or from other transfer programs, and induced changes in tax receipts; and the value that individuals and families place on receiving beneﬁts in the event of disability. We comprehensively assess these missing margins in the context of Norway’s DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and ﬁscal costs of disability receipt by linking employment, taxation, beneﬁts receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who diﬀer systematically in their leniency allows us to recover the causal eﬀects of DI allowance on individuals at the margin of program entry. Accounting for the total eﬀect of DI allowances on both household labor supply and net payments across all public transfer programs substantially alters our picture of the consumption beneﬁts and ﬁscal costs of disability receipt. While DI denial causes a signiﬁcant drop in household income and consumption on average, it has little impact on income or consumption of married applicants; spousal earnings and beneﬁt substitution entirely oﬀset the loss in DI beneﬁt payments. To develop the welfare implications of these ﬁndings, we estimate a structural model of household labor supply that translates employment decisions of both spouses into revealed preferences for leisure and consumption. We ﬁnd that household valuation of receipt of DI beneﬁts is considerably greater for single and unmarried individuals than for married couples, suggesting that it might be eﬃcient to lower replacement rates or impose stricter screening on married applicants.