The US Department of Veterans Affairs (VA) Disability Compensation (DC) program provides health and income to nearly four million military veterans who suffer disabilities connected to their military service.
Autor et al. (2016) study the impact of the VADC program on labor supply. Using a difference-in-differences design that takes advantage of a policy change in 2001 that expanded the medical eligibility criteria for a certain category of Vietnam War veterans, they find that an additional dollar of disability benefits leads to a reduction in mean earnings of 26 cents (Table 8, Panel D).
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Hendren and Sprung-Keyser (2020) translate this into its implied fiscal externality by multiplying the reduction in earnings by the tax rate, which implies a fiscal externality of $0.05. This implies an MVPF of 1/(1.05) = 0.95 (95% CI [0.92, 0.98]).
MVPF = 1.0
Autor, David H., Mark Duggan, Kyle Greenberg, and David S. Lyle (2016). “The Impact of Disability Benefits on Labor Supply: Evidence from the VA’s Disability Compensation Program.” American Economic Journal: Applied Economics, 8(3), 31-68. DOI: https://doi.org/10.1257/app.20150158
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006