Template-type: ReDif-Paper 1.0
Author-Name: Ayza Estopà, Guida
Author-Name: Cockx, Bart
Author-workplace-name: RS: GSBE other - not theme-related research, ROA / Human capital in the region
Author-Name: Fontenay, Sébastien
Author-Name: Tojerow, Ilan
Title: Return-to-Work Policies for Disability Insurance Recipients: The Role of Financial Incentives
Abstract: This paper studies how financial incentives shape labor supply decisions among disability insurance (DI) recipients who already combine benefits with part-time work. We exploit a distinctive feature of the Belgian Adapted Work Program, in which DI benefits are progressively withdrawn as earnings increase and the<br/>marginal withdrawal rate rises sharply at predefined thresholds. Because participants cannot freely adjust their working hours, this setting allows us to estimate how higher implicit taxation affects transitions out of partial work. Using administrative data and a Regression Kink Design, we find that higher implicit tax rates induce exits in two opposite directions: toward full-time employment and back to full DI. A oneeuro increase in the implicit marginal tax per working day raises the probability of returning to full DI by 3.0 percentage<br/>points and of resuming full-time employment by 1.5 percentage points, corresponding to elasticities of 0.84 and 0.85. A simple labor supply framework rationalizes these divergent responses. Our findings show that the financial design of partial-benefit schemes can determine whether partial work serves as a bridge toward full employment or instead leads recipients back to full benefit dependency.<br/>
Keywords: Disability insurance, Return-to-work policies, Financial incentives, Regression kink design
Classification-JEL: i13,l38
Series: ROA Research Memoranda
Creation-Date: 20261102
Number: 003
File-URL: https://cris.maastrichtuniversity.nl/ws/files/326404503/ROA_RM_2026_3.pdf
File-Format: application/pdf
File-Size: 3085553
Handle: Repec:unm:umaror:2026003
DOI: 10.26481/umaror.2026003