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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

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.

Suggested Citation

  • Manasi Deshpande & Tal Gross & Yalun Su, 2019. "Disability and Distress: The Effect of Disability Programs on Financial Outcomes," NBER Working Papers 25642, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25642
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    Cited by:

    1. Hamish Low & Luigi Pistaferri, 2020. "Disability Insurance: Theoretical Trade‐Offs and Empirical Evidence," Fiscal Studies, John Wiley & Sons, vol. 41(1), pages 129-164, March.
    2. Philip Armour & Melanie A. Zaber, 2020. "Does Student Loan Forgiveness Drive Disability Application?," NBER Working Papers 26787, National Bureau of Economic Research, Inc.
    3. 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).
    4. 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).
    5. Kenedi, Gustave, 2024. "Beyond the enrolment gap: financial barriers and high-achieving, low-income students' persistence in higher education," LSE Research Online Documents on Economics 126824, London School of Economics and Political Science, LSE Library.
    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. 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.
    8. Erkmen G. Aslim & Wei Fu & Erdal Tekin & Shijun You, 2023. "From Syringes to Dishes: Improving Food Security through Vaccination," NBER Working Papers 31045, National Bureau of Economic Research, Inc.
    9. C. Yiwei Zhang & Jeffrey Hemmeter & Judd B. Kessler & Robert D. Metcalfe & Robert Weathers, 2023. "Nudging Timely Wage Reporting: Field Experimental Evidence from the U.S. Supplemental Security Income Program," Management Science, INFORMS, vol. 69(3), pages 1341-1353, March.
    10. Katie M. Jajtner & Sophie Mitra & Christine Fountain & Austin Nichols, 2020. "Rising Income Inequality Through a Disability Lens: Trends in the United States 1981–2018," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(1), pages 81-114, August.
    11. Youngsoo Jang, 2023. "Credit, Default, And Optimal Health Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 943-977, August.
    12. Donou-Adonsou, Ficawoyi, 2022. "The effects of health conditions on financial sector development," Economic Modelling, Elsevier, vol. 114(C).
    13. Tuttle, Cody & Wilson, Riley, 2024. "Representative compensation and disability claimant outcomes," Journal of Public Economics, Elsevier, vol. 235(C).
    14. Katie Jajtner & Matt Messel & Jason Fletcher, 2023. "Social Security Disability Insurance and intergenerational economic mobility," Contemporary Economic Policy, Western Economic Association International, vol. 41(4), pages 575-593, October.
    15. Megan Henly, 2024. "Supplemental Security Income (SSI) Receipt and Access to Homeownership for People with Disabilities," Disabilities, MDPI, vol. 4(4), pages 1-12, December.
    16. Fich, Eliezer M. & Nguyen, Tung & Petmezas, Dimitris, 2023. "The effects of terrorist attacks on inventor productivity and mobility," Research Policy, Elsevier, vol. 52(1).
    17. Joel Cuffey & Timothy K. M. Beatty & Elton Mykerezi, 2022. "Work Effort and Work Requirements for Food Assistance among U.S. Adults," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 294-317, January.
    18. 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.
    19. Alexander Gelber & Timothy Moore & Zhuan Pei & Alexander Strand, 2023. "Disability Insurance Income Saves Lives," Journal of Political Economy, University of Chicago Press, vol. 131(11), pages 3156-3185.
    20. 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.
    21. 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.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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