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At whose service? Subsidizing services and the skill premium

  • Bas van Groezen
  • L. Meijdam

In this paper we investigate the effects of subsidizing low-skilled, labour-intensive services hired by high-skilled individuals in the presence of labour income taxation. Whether such a subsidy can be Pareto-improving depends crucially on the degree of substitutability of both types of labour in the non-service sector. In case of some substitutability, a service subsidy can benefit all and decrease inequality, but in case of complementarity, low-skilled individuals benefit and high-skilled individuals are worse off.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/309699/09_30.pdf
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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-30.

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Date of creation: Nov 2009
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Handle: RePEc:use:tkiwps:0930
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  1. Kleven, Henrik Jacobsen, 2004. "Optimum taxation and the allocation of time," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 545-557, March.
  2. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2008. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," CESifo Working Paper Series 2303, CESifo Group Munich.
  3. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc.
  4. Theodore C. Bergstrom & S�ren Blomquist, . "The Political Economy of Subsidized Day Care," ELSE working papers 015, ESRC Centre on Economics Learning and Social Evolution.
  5. 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.
  6. Kevin J. Mumford, 2008. "The Efficiency Cost of Child Tax Benefits," Purdue University Economics Working Papers 1220, Purdue University, Department of Economics.
  7. Henry Ohlsson & Michael Lundholm, 1998. "Wages, taxes and publicly provided day care," Journal of Population Economics, Springer, vol. 11(2), pages 185-204.
  8. Kleven, Henrik Jacobsen & Richter, Wolfram F & Sorensen, Peter Birch, 2000. "Optimal Taxation with Household Production," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 584-94, July.
  9. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  10. Blomquist, Sören, 2009. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates: Some Further Results," Working Paper Series 2009:13, Uppsala University, Department of Economics.
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