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Disability and Distress: The Effect of Disability Programs on Financial Outcomes

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  • Manasi Deshpande
  • Tal Gross
  • Yalun Su

Abstract

What is the relationship between disability programs and financial distress? We provide the first evidence on this relationship using several markers of financial distress: bankruptcy, foreclosure, eviction, and home sale. Rates of these adverse financial events peak around the time of disability application. Using variation induced by an age-based eligibility rule, we find that disability allowance reduces the likelihood of bankruptcy by 20 percent, foreclosure by 33 percent, and home sale by 15 percent. We present evidence that these changes reflect true reductions in financial distress. Considering these extreme events increases the optimal disability benefit amount and suggests a shorter optimal waiting time between application and benefit receipt.

Suggested Citation

  • Manasi Deshpande & Tal Gross & Yalun Su, 2021. "Disability and Distress: The Effect of Disability Programs on Financial Outcomes," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 151-178, April.
    • Handle: RePEc:aea:aejapp:v:13:y:2021:i:2:p:151-78
    DOI: 10.1257/app.20190709
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    References listed on IDEAS

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    2. Black, Bernard & French, Eric & McCauley, Jeremy & Song, Jae, 2024. "The effect of disability insurance receipt on mortality," Journal of Public Economics, Elsevier, vol. 229(C).
    3. Michelle M. Miller, 2022. "The impact of paid sick leave laws on consumer and business bankruptcies," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 19(4), pages 844-896, December.
    4. Montpetit, Sébastien & Beaureard, Pierre-Loup & Carrer, Luisa, 2024. "A welfare analysis of universal childcare: Lessons from a Canadian reform," CLEF Working Paper Series 73, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    5. Fich, Eliezer M. & Nguyen, Tung & Petmezas, Dimitris, 2023. "The effects of terrorist attacks on inventor productivity and mobility," Research Policy, Elsevier, vol. 52(1).
    6. Manasi Deshpande & Lee M. Lockwood, 2022. "Beyond Health: Nonhealth Risk and the Value of Disability Insurance," Econometrica, Econometric Society, vol. 90(4), pages 1781-1810, July.
    7. Aslim, Erkmen Giray & Fu, Wei & Tekin, Erdal & You, Shijun, 2023. "From Syringes to Dishes: Improving Food Security through Vaccination," IZA Discussion Papers 16009, Institute of Labor Economics (IZA).
    8. Swensen, Isaac D. & Urban, Carly, 2023. "Literature Review on the Effect of Physical and Mental Health on Financial Well-Being," IZA Policy Papers 198, Institute of Labor Economics (IZA).
    9. Colleen Carey & Nolan H. Miller & David Molitor, 2022. "Why Does Disability Increase During Recessions? Evidence from Medicare," NBER Working Papers 29988, National Bureau of Economic Research, Inc.
    10. Gustave Kenedi, 2024. "Beyond the enrolment gap: Financial barriers and high-achieving, low-income students' persistence in higher education," CEP Discussion Papers dp1987, Centre for Economic Performance, LSE.
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    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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