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Welfare Enhancing Marginal Tax Rates: The Case of Publicly Provided Day Care

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Author Info

  • Blomquist, Sören

    (Institute for Futures Studies)

  • Christiansen, Vidar

    ()
    (University of Oslo)

Abstract

There is a well established case for public provision of certain private goods when the government pursues income redistribution under asymmetric information about the skill levels of the agents of the economy. This paper higlights the role of tax funding of day care for children, which is a striking example of a valid case for public provision. We demonstrate that the optimal income tax should face alla agents with the (social) cost of the day care they need in order to earn futher income. In this sense day care should not be subsidised. It is simply paid for via the tax bill. However, such a payment scheme, rather than a day care fee, is crucial for alleviating the self-selection constraint of the asymmetric information, non-linear income tax model, as it imposes a burden of paying for superfluous day care on a mimicking high-skilled agent. Also, deviating from conventional preference assumptions, we show that heterogeneity of preferences for work and day care does not invalidate the Pareto improving properties of this kind of public provision.

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Bibliographic Info

Paper provided by Institute for Futures Studies in its series Arbetsrapport with number 2004:6.

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Length: 23 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:hhs:ifswps:2004_006

Note: ISSN 1652-120X ISBN 91-89655-55-9
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Postal: Institute for Futures Studies, Box 591, SE-101 31 Stockholm, Sweden
Phone: 08-402 12 00
Fax: 08-24 50 14
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Web page: http://www.framtidsstudier.se
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Related research

Keywords: Day care; Marginal income tax; Public provision; Private goods; In-kind transfer; Heterogeneous preferences;

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References

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Cited by:
  1. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.

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