At whose service? Subsidizing services and the skill premium

Bas van Groezen and Lex Meijdam

No 09-30, Working Papers from Utrecht School of Economics

Abstract: 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.

Keywords: household production; services; skill premium; subsidy; wage tax (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-lab
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Related works:
Working Paper: At Whose Service? Subsidizing Services and the Skill Premium (2010)
Working Paper: At Whose Service? Subsidizing Services and the Skill Premium (2010)
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