Survivor benefits and the Family: Labor Market Responses and Intergenerational Effects

Abstract

This paper estimates the long-run effects of survivor benefit generosity on widows and their children. I study two changes introduced by a 1996 Dutch reform, using regression discontinuity designs that exploit date-of-death cutoffs. The first change tightens the income test, reducing benefit amount for widows with other income. Widows respond to this higher implicit tax on labor income by reducing earnings. Their sons - particularly those who lose a father before age 18 - have lower educational attainment and lower earnings at age 30. A fiscal analysis that accounts for intergenerational effects shows that the tighter income test generates no net saving in public funds. The second change tightens eligibility criteria, restricting survivor benefits to widows with a minor child or work disability. Losing eligibility increases widows' labor supply and their use of other public benefits. The average effect on children is null, although daughters whose mother is likely to enter welfare experience negative effects. The stricter eligibility criteria result in large fiscal savings.