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Child Care in the Welfare State A critique of the Rosen model

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  • Iulie Aslaksen
  • Charlotte Koren

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    (Statistics Norway)

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    Abstract

    A recent study of the welfare state in Sweden, Rosen (1995, 1996, 1997), concludes that child care subsidies may lead to substantial deadweight losses that may impede economic growth and the future of the welfare state. In this article we show that the deadweight losses are highly sensitive to some parameter restrictions implied by Rosen's theoretical model. We then critically review the relation between the parameter values in Rosen's model. Moreover, as a first approach to extend Rosen's model, we analyze the case of positive externalities associated with child quality. The positive externality provides a rationale for child care subsidies, as expected, and also influences the optimal income tax rate.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp269.pdf
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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 269.

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    Date of creation: Mar 2000
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    Handle: RePEc:ssb:dispap:269

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    Related research

    Keywords: Household Production; Externalities; Optimal Taxation; Subsidies;

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    1. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
    2. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
    3. Peter Rupert & Richard Rogerson & Randall Wright, 1994. "Estimating substitution elasticities in household production models," Staff Report 186, Federal Reserve Bank of Minneapolis.
    4. Ingram, Beth F. & Kocherlakota, Narayana R. & Savin, N. E., 1997. "Using theory for measurement: An analysis of the cyclical behavior of home production," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 435-456, December.
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