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The Political Economy of Subsidized Day Care

  • Bergstrom, T.
  • Blomquist, S.

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 Michigan - Center for Research on Economic & Social Theory in its series Papers with number 93-30.

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Length: 17 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:michet:93-30
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UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A.

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  1. Boadway, R. & Marchand, M., . "The use of public expenditures for redistributive purposes," CORE Discussion Papers RP 1131, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  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. 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.
  4. Sherwin Rosen, 1995. "Public Employment, Taxes and the Welfare State in Sweden," NBER Working Papers 5003, National Bureau of Economic Research, Inc.
  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.
  6. 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.
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  8. Robin W. Boadway & Maurice Marchand, 1990. "The Use of Public Expenditure for Distributive Purpose," Working Papers 796, Queen's University, Department of Economics.
  9. David M. Blau, 1992. "The Child Care Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 9-39.
  10. Siv Gustafsson & Frank Stafford, 1992. "Child Care Subsidies and Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 204-230.
  11. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
  12. Besley, Timothy, 1991. " Welfare Improving User Charges for Publicly Provided Private Goods," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(4), pages 495-510.
  13. 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.
  14. Charles Michalopoulos & Philip K. Robins & Irwin Garfinkel, 1992. "A Structural Model of Labor Supply and Child Care Demand," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 166-203.
  15. Munro, Alistair, 1989. "In-kind transfers, cash grants and the supply of labour," European Economic Review, Elsevier, vol. 33(8), pages 1597-1604, October.
  16. Besley, T. & Coate, S., 1989. "Public Provision Of Private Goods And The Redistribution Of Income," Papers 36, Princeton, Woodrow Wilson School - Discussion Paper.
  17. Munro, Alistair, 1991. "The optimal public provision of private goods," Journal of Public Economics, Elsevier, vol. 44(2), pages 239-261, March.
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