The US Supplemental Security Income (SSI) program is a federal social program that provides cash payments and Medicaid eligibility to low-income children, adults with disabilities, and the elderly. Deshpande, Gross and Su (2021) exploit variation in the medical eligibility guidelines at age 50 and 55 to compute the impact of SSI receipt on financial outcomes. They estimate the impact of SSI on measures of financial distress, including bankruptcy, foreclosure, eviction, and home sales. The authors find that SSI participation reduces the likelihood of bankruptcy (0.77pp or 31 percent), foreclosure (1.8pp or 34 percent), and home sale (1.8pp or 15 percent).

MVPF = 1.0

To compute program costs, the authors consider the average direct cost per enrollee of $13,000 per year plus three sources of fiscal externalities: i) reductions in income tax payments due to reduced earnings, ii) increases in lenders’ tax liability due to reduction in bankruptcy rates, and iii) increases in government revenue because of reduced foreclosure risks. For i), the authors use their estimates of SSI’s effect on labor earnings (average reduction of $3,685 over 3 years) and an average tax rate of 15 percent to conclude government revenue decreases by $553 due to reduced earnings over 3 years. For ii) the authors use their estimates of the effect of SSI on the probability of bankruptcy to compute a reduction in government costs of $86 over 3 years due to reduced bankruptcy. This comes from the fact that lenders discharge debt in bankruptcy and deduct the discharged debt from taxable income, and therefore lower bankruptcy rates increase government corporate tax collection on lenders. For iii), the authors multiply their estimates of the reduction in foreclosure probability caused by SSI participation by the total cost of foreclosures to the government – composed of foregone taxes on lenders, foregone local property taxes and administrative costs – to arrive at $137 in reduction in government costs. All of these costs were calculated over a three-year period, so additional costs per year of SSI are (553-137-86)/3=$330/3 = $110, for a total cost of $13,110.

$13.1K
Net Cost

Upper Margin
Lower Margin

To compute the WTP, the authors assume SSI transfers are valued on a dollar-for-dollar basis, causing a direct benefit of $13,000. The authors also consider a spillover effect of SSI. They find that SSI reduces the probability of foreclosure, and since foreclosure reduces the value of neighboring property, owners of neighboring property experience welfare gains. They use estimates from the literature on the decline in property values caused by foreclosure ($148,000 on average) and their own estimates of SSI’s impact on foreclosure probability over 3 years (1.73%) to compute a total spillover of $2,560 over 3 years, or $853 per year. They assume that the owners of neighboring property are, on average, wealthier than SSI recipients. To account for this fact, they apply a 0.75 discount factor to welfare spillovers, which gives WTP for $13,000 of SSI of WTP = $13,000 + ($853*0.75) = $13,640. Without this discount factor, the WTP would be $13,853.

$13.6K
WTP

Upper Margin
Lower Margin

The MVPF of SSI is then given by MVPF = ($13,000 + $640) / ($13,000 + $110) = 1.04.

If instead of valuing the spillover benefits at $0.75 one valued them at $1, the MVPF would be 1.056.

1.0
MVPF

Upper Margin
Lower Margin

Deshpande, Manasi, Tal Gross and Yalun Su (2021). “Disability and Distress: The Effect of Disability Programs on Financial Outcomes.” American Economic Journal: Applied Economics, 13(2):151-78. https://www.aeaweb.org/articles?id=10.1257/app.20190709

- Category
- Social Insurance
- Sub-Category
- DI/SSI
- Beneficiary Type(s)
- Adults
- Average Age
- 52
- Country of Implementation
- United States
- Year of Implementation
- 2000
- Empirical Method
- Regression Discontinuity
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- www.aeaweb.org/articles?id=10.1257/app.20190709