Publication Type

Working Paper

Publication Date

3-2016

Abstract

We study the design of child care subsidies in an optimal welfare problem with heterogeneous private market productivities. The optimal subsidy schedule is qualitativelysimilartotheexistingUSscheme. Efficiencymandatesasubsidyonformalchild care costs, with higher subsidies paid to lower income earners and a kink as a function of child care expenditure. Marginal labor income tax rates are set lower than the labor wedges, with the potential to generate negative marginal tax rates. We calibrate our model to features of the US labor market and focus on single mothers with children aged below 6. The optimal program provides stronger participation but milder intensive margin incentives for low income earners with subsidy rates starting very high and decreasing with income more steeply than those in the US.

Keywords

Optimal welfare, child care subsidies, non-linear transfers

Discipline

Income Distribution

Research Areas

Applied Microeconomics

First Page

1

Last Page

64

Publisher

IGIER

City or Country

Milano, Italy

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://ideas.repec.org/p/igi/igierp/572.html

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