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Political Economy of Subsidized Day Care

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Author Info
Ted Bergstrom (University of Michigan, Dept of Economics)
Soren Blomquist

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Abstract

In a simple model of day care enrollment and labor supply, we have shown that in countries like Sweden where wages are taxed at about 60\%, the government's tax revenue, net of day care subsidies, is likely to be maximized with subsidies covering more than half of day care costs. In contrast, in countries where the marginal tax rate on wages is about 40\%, the subsidy rate that maximizes net government revenue is likely to be between 15\% and 30\%. We also studied the workings of day care subsidies in a federal system. If both federal and local governments collect income taxes and if day care subsidies are set locally, then the subsidy rates chosen by selfish voters in local elections would be lower than the rates they would choose for federal subsidies. In this model all voters are better off if day care subsidy rates are set by the federal government, with voters simultaneously deciding the rate for the entire federation.

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Paper provided by EconWPA in its series Public Economics with number 9401001.

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Date of creation: 18 Jan 1994
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Handle: RePEc:wpa:wuwppe:9401001

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Find related papers by JEL classification:
D6 - Microeconomics - - Welfare Economics
D7 - Microeconomics - - Analysis of Collective Decision-Making
H - Public Economics

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  1. James J. Heckman, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters, in: Marriage, Family, Human Capital, and Fertility, pages 136-169 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Ribar, D.C., 1990. "Child Care And The Labor Supply Of Married Women: Reducted Form Evidence," Papers 9-90-9, Pennsylvania State - Department of Economics.
  3. Besley, Timothy, 1991. " Welfare Improving User Charges for Publicly Provided Private Goods," Scandinavian Journal of Economics, Blackwell Publishing, vol. 93(4), pages 495-510.
  4. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Blackwell Publishing, vol. 41(1), pages 119-28, January. [Downloadable!] (restricted)
  5. Blomquist, N. Soren, 1982. "Should educational expenses be deductible? : A comparison of tax bases in a model where education is a choice variable," Journal of Public Economics, Elsevier, vol. 18(1), pages 65-83, June. [Downloadable!] (restricted)
  6. James J. Heckrnan, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters, in: Economics of the Family: Marriage, Children, and Human Capital, pages 491-524 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September. [Downloadable!] (restricted)
  8. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, vol. 81(4), pages 979-84, September. [Downloadable!] (restricted)
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  9. Munro, Alistair, 1991. "The optimal public provision of private goods," Journal of Public Economics, Elsevier, vol. 44(2), pages 239-261, March. [Downloadable!] (restricted)
  10. Ireland, Norman J., 1990. "The mix of social and private provision of goods and services," Journal of Public Economics, Elsevier, vol. 43(2), pages 201-219, November. [Downloadable!] (restricted)
  11. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Munro, Alistair, 1989. "In-kind transfers, cash grants and the supply of labour," European Economic Review, Elsevier, vol. 33(8), pages 1597-1604, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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:
  2. 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!]
  3. 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:
  4. 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:
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