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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

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We provide the first evidence on the relationship between disability programs and markers of financial distress: bankruptcy, foreclosure, eviction, and home sale. Rates of these adverse financial events peak around the time of disability application and subsequently fall for both allowed and denied applicants. To estimate the causal effect of disability programs on these outcomes, we use variation induced by an age-based eligibility rule and find that disability allowance substantially reduces the likelihood of adverse financial events. Within three years of the decision, the likelihood of bankruptcy falls by 0.81 percentage point (30 percent), and the likelihood of foreclosure and home sale among homeowners falls by 1.7 percentage points (30 percent) and 2.5 percentage points (20 percent), respectively. We find suggestive evidence of reductions in eviction rates. Conversely, the likelihood of home purchases increases by 0.86 percentage point (20 percent) within three years. We present evidence that these changes reflect true reductions in financial distress. In our model of optimal disability benefits, considering these extreme events increases optimal disability benefits and potentially shortens waiting times.

Zonder onderwerpscode: economie

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The application process is critical to the targeting of disability programs because disability, relative to other tags, is difficult to observe and costly to verify. We study the effect of application costs on the targeting of disability programs using the closings of Social Security Administration field offices, which provide assistance with filing disability applications. Using administrative data from the Social Security Administration, we find that field office closings lead to large and persistent reductions in the number of disability recipients and reduce targeting efficiency based on current eligibility standards. The number of disability recipients declines by 13% in surrounding areas, with the largest effects for applicants with moderately severe conditions, low education levels, and low pre-application earnings. Evidence on channels suggests that most of the reduction in applications is attributable to increased congestion at neighboring offices rather than increased travel times or costs of information gathering.