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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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  • Iulie Aslaksen & Charlotte Koren, 2000. "Child Care in the Welfare State A critique of the Rosen model," Discussion Papers 269, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:269
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    1. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-290, May.
    2. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 179-193, June.
    3. Sherwin Rosen, 1997. "Public Employment, Taxes, and the Welfare State in Sweden," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 79-108, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
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    Cited by:

    1. Knut R. Wangen & Erik Biørn, 2001. "Prevalence and substitution effects in tobacco consumption: A discrete choice analysis of panel data," Discussion Papers 312, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Household Production; Externalities; Optimal Taxation; Subsidies;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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