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Wages, taxes and publicly provided day care

  • Henry Ohlsson

    ()

    (Department of Economics, Uppsala University, P.O. Box 513, SE-75120 Uppsala, Sweden)

  • Michael Lundholm

    ()

    (Department of Economics, Stockholm University, SE-10691 Stockholm, Sweden)

Public employment growth has been parallelled by increased female labour force participation, while real wages for typical female public sector occupations have not increased. In a theoretical model we, first, show that there is a tradeoff between day care provision and gross wages for occupations for which day care is a complement. It is possible to combine increased public labour demand with public day care provision leaving the wage unaffected. Second, non-parents will be in favour of increasing day care as long as day care productivity is higher than the inverse of the tax rate. This is because the effective labour supply and, therefore, the tax base increase. Third, parents want to push day care provision even further. They are prepared to accept a lower day care productivity than non-parents because day care provision relaxes the constraint on their desired labour supply. The Pareto efficient day care provision is between parents` and non-parents` preferred levels.

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Article provided by Springer in its journal Journal of Population Economics.

Volume (Year): 11 (1998)
Issue (Month): 2 ()
Pages: 185-204

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Handle: RePEc:spr:jopoec:v:11:y:1998:i:2:p:185-204
Note: Received: 12 December 1995 / Accepted: 17 September 1997
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