Interactions in Public Policies: Spousal Responses and Program Spillovers of Welfare Reforms

In this paper we exploit the introduction of an early retirement reform in Norway to provide new evidence on interactions in public policies across programs and household members. The analysis generates four results. First, the reform decreased the employment of the directly affected individuals. Second, the introduction of the early retirement option caused program substitution away from alternative welfare programs. Third, it reduced employment among spouses of directly affected individuals. Finally, the reduction in spousal employment was driven by take-up of disability insurance. These results demonstrate that interactions in public policies can have a substantial impact on the effect of welfare reforms.