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Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms

Hoynes, Hilary Williamson and Moffitt, Robert

Abstract:

This paper examines the work incentives in the Social Security Disability Insurance (SSDI) Program under current law and proposed reforms. We begin with a discussion of the expected effect of the program on work effort according to the basic static labor supply model. In addition, we provide a numerical simulation that shows the magnitude of the monetary incentives provided by current law and the reforms for different categories of individuals. We find that the proposed reforms have ambiguous effects on work effort and could, contrary to perceived wisdom, possibly reduce work effort and increase the number of SSDI recipients.

Citation

Hoynes, Hilary Williamson and Moffitt, Robert (1999), Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms, National Tax Journal, 52:4, pp. 623-54