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The Political Economy of Subsidized Day Care

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Author Info
Ted Bergstrom (University of California, Santa Barbara)
Soren Blomquist (Uppsala University)

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Abstract

This paper presents a theoretical model of political support for public provision of day care. In an economy where there are high taxes on wage income, selfish taxpayers with no children in the day care system may favor substantial public subsidies to day care because such subsidies induce mothers to join the labor force and hence pay income tax. Our model makes explicit quantitative predictions of the relation between the distribution of wages, theincome tax rate, and the subsidy rate for day care that maximizes net tax revenue from parents of small children. Applying parameter values from Sweden and the United States, we find that our model predicts a subsidy rate of between 50% and 100% for Sweden with its high tax rate on wages and between 15% and 30% for the U.S. with its lower tax rate on wages.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1119&context=ucsbecon
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Publisher Info
Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 1995B.

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Date of creation: 01 Jun 1995
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Handle: RePEc:cdl:ucsbec:1995b

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Related research
Keywords: day care publicly provided private goods labor supply taxation

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  1. Blomquist, Sören & Micheletto, Luca, 2004. "Redistribution, In-Kind Transfers and Matching Grants when the Federal Government Lacks Information on Local Costs," Working Paper Series 2004:15, Uppsala University, Department of Economics. [Downloadable!]
  2. Iñigo Iturbe Ormaetxe & Carmen Beviá, 2000. "Redistribution And Subsidies For Higher Education," Working Papers. Serie AD 2000-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
    Other versions:
  3. Aronsson, Thomas & Blomquist, Sören & Micheletto, Luca, 2007. "Where Should the Elderly Live and Who Should Pay for their Care? A Study in Demographics and Geographical Economics," Working Paper Series 2007:6, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  4. Anna Brink & Katarina Nordblom & Roger Wahlberg, 2007. "Maximum Fee vs. Child Benefit: A Welfare Analysis of Swedish Child-Care Fee Reform," IZA Discussion Papers 2748, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Sherwin Rosen, 1995. "Public Employment, Taxes and the Welfare State in Sweden," NBER Working Papers 5003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Brink, Anna & Nordblom, Katarina, 2005. "Child-care quality and fee structure: Effects on labor supply and leisure composition," Working Papers in Economics 157, Göteborg University, Department of Economics. [Downloadable!]
  7. Sanghamitra Bandyopadhyay & Joan Esteban, 2007. "Redistributive Taxation and PublicExpenditures," STICERD - Distributional Analysis Research Programme Papers 95, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  8. Blomquist, Sören & Christiansen, Vidar, 1998. "The Political Economy of Publicly Provided Private Goods," Working Paper Series 1998:14, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  9. Agell, Jonas & Persson, Mats, 1998. "Tax Arbitrage and Labor Supply," Seminar Papers 647, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  10. Robin Boadway & Firouz Gahvari, 2006. "Optimal Taxation with Consumption Time as a Leisure or Labor Substitute," Working Papers 1068, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  11. Hanming Fang & Peter Norman, 2008. "Toward an Efficiency Rationale for the Public Provision of Private Goods," NBER Working Papers 13827, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Jonas Agell & Mats Persson, 1998. "Tax Arbitrage and Labor Supply," NBER Working Papers 6708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Borck, Rainald & Wrohlich, Katharina, 2008. "Preferences for Childcare Policies: Theory and Evidence," IZA Discussion Papers 3694, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Lundholm , Michael & Ohlsson , Henry, 2002. "Negative Externalities in Day Care: Optimal Tax Policy Response," Working Papers in Economics 68, Göteborg University, Department of Economics. [Downloadable!]
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