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Intergenerational Transmission of Skills during Childhood and Optimal Public Policy

  • Alessandra Casarico
  • Luca Micheletto
  • Alessandro Sommacal

The paper characterizes the optimal tax policy and the optimal quality of day care services in a OLG model with warm-glow altruism where parental choices over child care arrangements affect the probability that the child becomes a high-skilled adult in a type-specific way. With respect to previous contributions, optimal tax formulas include type-specific Pigouvian terms which correct for the intergenerational externality in human capital accumulation. Our numerical simulations suggest that a public policy that disregards the effects of parental time on children's human capital entails a welfare loss that ranges from 0:2% to 5:7% of aggregate consumption.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-02/cesifo1_wp3343.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3343.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3343
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