Lundholm , Michael () (Departement of Economics) Ohlsson , Henry (Department of Economics, School of Economics and Commercial Law, Göteborg University)
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Systematic pediatric evidence shows that the morbidity rates for children in day care are increasing in the group size.Sick children are usually cared for at home by parents. This creates a negative externality of parents' labor force participation. The social optimum implies lower group size than the non--intervention market equilibrium. We study the optimal tax policy. The cost of labor force participation should be increased. This can be done by either or both a tax on day care services and a home care allowance. The cost of providing day care should be decreased by a subsidy to entrepreneurs running day care centers. This policy will decrease the group size. It is, however, not necessarily the case that this will decrease labor force participation.
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Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number
68.
Length: 21 pages Date of creation: 09 Apr 2002 Date of revision: Handle: RePEc:hhs:gunwpe:0068
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden Phone: 031-773 10 00 Web page: http://www.handels.gu.se/econ/ More information through EDIRC
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