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Child Care in the Welfare State A critique of the Rosen model

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    A recent study of the welfare state in Sweden, Rosen (1995, 1996, 1997), concludes that child care subsidies may lead to substantial deadweight losses that may impede economic growth and the future of the welfare state. In this article we show that the deadweight losses are highly sensitive to some parameter restrictions implied by Rosen's theoretical model. We then critically review the relation between the parameter values in Rosen's model. Moreover, as a first approach to extend Rosen's model, we analyze the case of positive externalities associated with child quality. The positive externality provides a rationale for child care subsidies, as expected, and also influences the optimal income tax rate.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp269.pdf
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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 269.

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    Date of creation: Mar 2000
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    Handle: RePEc:ssb:dispap:269
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    1. Ingram, Beth F. & Kocherlakota, Narayana R. & Savin, N. E., 1997. "Using theory for measurement: An analysis of the cyclical behavior of home production," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 435-456, December.
    2. Ellen McGrattan & Richard Rogerson & Randall Wright, 1995. "An equilibrium model of the business cycle with household production and fiscal policy," Staff Report 191, Federal Reserve Bank of Minneapolis.
    3. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer, vol. 6(1), pages 179-93, June.
    4. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
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