Child Care in the Welfare State A critique of the Rosen model
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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- 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.
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"An equilibrium model of the business cycle with household production and fiscal policy,"
191, Federal Reserve Bank of Minneapolis.
- 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 267-90, May.
- 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.
- Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995.
"Estimating Substitution Elasticities in Household Production Models,"
Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 179-93, June.
- Peter Rupert & Richard Rogerson & Randall Wright, 1994. "Estimating substitution elasticities in household production models," Staff Report 186, Federal Reserve Bank of Minneapolis.
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