What happens with the employment of disabled individuals when all financial disincentives to work are abolished?
Speaker(s): Judit Vall
Date: Thursday, 21 April, 2016
Time: 12.00-13.00
Venue: H12-30
Contact person(s): Teresa Bago d'Uva
Abstract
Policy reforms that try to provide incentives for disabled individuals to work typically introduce reductions in the financial punishment attached to earning more than a pre-determined threshold (Substantial Gainfull Activity). In this paper, we exploit the first reform that entirely abolished the negative consequences associated with taking up a job for disabled individuals. Traditionally, individuals receiving partial disability (PD) benefits in Spain have been subject to income taxation. However, in two out of the three provinces of the Basque Country there was an exemption of income taxation conditional on not being employed. The employment conditionality was abolished in 2007 in those two provinces. Therefore, we exploit this change in the legislation and compare employment outcomes across provinces and time in order to identify the effects of abolishing all financial penalties associated with having a job. Our results show that the reform increased the probability of working by 9.26 percentage points for disabled men (42.4%). Contrary to previous research, we also report an increased entry effect into DI as a result of the abolishment of the financial penalties.