The effect of disability pension incentives on early retirement decisions |
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| Authors: | Barbara Hanel |
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| Institution: | 1. State Key Laboratory of Biogeology and Environmental Geology, China University of Geosciences, Beijing 100083, China;2. School of the Earth Sciences and Resources, China University of Geosciences, Beijing 100083, China;1. Department of Statistics and Actuarial Science, University of Iowa, Schaeffer Hall 241, Iowa City, IA 52242;2. Department of Occupational and Environmental Health, University of Iowa, USA;3. Department of Internal Medicine, University of Iowa, USA;4. Department of Radiology and Biomedical Engineering, University of Iowa, USA;5. Departments of Radiology, Internal Medicine and Biomedical Engineering, University of Iowa, USA;6. Department of Radiology, University of Iowa, USA;7. Department of Radiology, Seoul National University Hospital, Seoul, South Korea;8. Department of Occupational and Environmental Health and Department of Epidemiology, University of Iowa, USA;1. Department of Economics, College of Business and Economics, Lehigh University, 621 Taylor Street, Bethlehem, PA 18015-3117, USA;2. City University of New York Graduate Center, 365 Fifth Avenue, 5th Floor, New York, NY 10016-4309, USA;3. Department of Economics, National Taiwan University, 21 Hsu-Chow Road, Taipei 100, Taiwan;4. National Bureau of Economic Research, 5 Hanover Square, 16th Floor, Suite 1602, New York, NY 10004-2630, USA;5. IZA, P. O. Box 7240, 53072 Bonn, Germany |
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| Abstract: | I investigate the incentive effects of disability pensions on disability retirement entry as a special type of early retirement. The implicit tax rate on further work is included as a forward looking incentive measure. A substantial change of the disability pension legislation caused exogenous variation in disability benefits in Germany in 2001 and is used to obtain estimates of individual's responses to financial incentives. Benefit levels appear to have no effect on the labour market behaviour. At the same time, there is a sizable and significant disincentive effect of implicit taxes on labour market income, indicating that alleviating such disincentives would likely increase labour force participation. Since the response to financial incentives occurs mainly among those in good health, such a policy might on the other hand imperil the aim of providing insurance against a health‐induced loss of one's working capacity. |
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