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Negative Externalities in Day Care: Optimal Tax Policy Response

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  • Lundholm , Michael

    ()
    (Departement of Economics)

  • Ohlsson , Henry

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

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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File URL: http://hdl.handle.net/2077/2835
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 68.

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Length: 21 pages
Date of creation: 09 Apr 2002
Date of revision:
Handle: RePEc:hhs:gunwpe:0068

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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: negative externalities; infections; day care centers; optimal taxation; Pigouvian taxes;

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  1. Bergstrom, T. & Blomquist, S., 1993. "The Political Economy of Subsidized Day Care," Papers 93-30, Michigan - Center for Research on Economic & Social Theory.
  2. Henry Ohlsson & Michael Lundholm, 1998. "Wages, taxes and publicly provided day care," Journal of Population Economics, Springer, vol. 11(2), pages 185-204.
  3. Pitt, Mark M & Rosenzweig, Mark R, 1990. "Estimating the Intrahousehold Incidence of Illness: Child Health and Gender-Inequality in the Allocation of Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(4), pages 969-80, November.
  4. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
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