Social Program Substitution and Optimal Policy

Nicholas Lawson (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

A growing literature on substitution between social programs provides consistent evidence that changes in the generosity of one program can lead to changes in enrollment on other programs. However, this evidence has been ignored in welfare analyses of social insurance programs. I demonstrate that substitutions between programs can dramatically alter conclusions about optimal policy, with a particular focus on optimal unemployment insurance (UI) when there is substitution between UI and disability insurance (DI). If more generous UI reduces enrollment on DI, the result is a reduction in government spending on DI, and I show that this effect can significant increase the optimal UI replacement rate from 3% to 85%.

Mots clés: fiscal interactions; program substitution; optimal unemployment insurance; disability insurance

Domaines: Economies et finances

Nicholas Lawson. Social Program Substitution and Optimal Policy. 2014. ⟨halshs-00993127⟩