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Child Care Subsidies, Quality, and Optimal Income Taxation

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  • Spencer Bastani
  • Sören Blomquist
  • Luca Micheletto

Abstract

We study child care subsidies in a Mirrleesian optimal tax framework where parents choose both the quantity and quality of child care. Child care services not only enable parents to work, but also contribute to children's human capital. We examine the conditions under which child care expenditures should be encouraged or discouraged by the tax system under different assumptions regarding the available policy instruments. Using a quantitative model calibrated to the US economy, we illustrate the possibility that child care expenditures should be taxed rather than subsidized, and we discuss the merits of public provision schemes for child care.

Suggested Citation

  • Spencer Bastani & Sören Blomquist & Luca Micheletto, 2020. "Child Care Subsidies, Quality, and Optimal Income Taxation," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 1-37, November.
    • Handle: RePEc:aea:aejpol:v:12:y:2020:i:4:p:1-37
    DOI: 10.1257/pol.20170648
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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