Optimal Disability Insurance with Informal Child Care

Christine Ho

The B.E. Journal of Economic Analysis & Policy, 2019, vol. 19, issue 2, 42

Abstract: The possibility of engaging in household child care may exacerbate the incentives of parents and grandparents to falsely claim disability benefits as households also get to save on formal child care costs. This paper considers a multi-generational family model with persistence in privately observed shocks and presents an efficient implementation case for subsidizing formal child care costs of the disabled. An implementation of the optimal scheme that consists of capped formal day care subsidies, non-linear income taxation and asset-testing is proposed. Simulations based on a parametrization that targets key features of the US labor and child care markets suggest that day care subsidies may lead to sizeable cost savings.

Keywords: disability insurance; day care subsidies; multi-member family (search for similar items in EconPapers)
JEL-codes: H21 H24 H31 J14 J22 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/bejeap-2018-0082

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