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Child Care Subsidies, Quality, and Optimal Income Taxation

Spencer Bastani (), Sören Blomquist and Luca Micheletto

No 6533, CESifo Working Paper Series from CESifo Group Munich

Abstract: In this paper we examine the desirability of subsidizing child care expenditures in a model where parents can choose both the quantity and the quality of child care services they purchase in the market. Our vehicle of analysis is a Mirrleesian optimal tax framework where child care services not only enable parents to work, but also contribute to children’s formation of human capital. In addition, there are externalities related to the parents’ choice of child care arrangements for their offspring. Using a quantitative simulation model calibrated to the US economy, we evaluate the relative merits of some the most common forms of child care subsidies (tax deductions, tax credits, and opting-out public provision schemes) in terms of their effectiveness in alleviating the distortions associated with income taxation and increasing the quality of child care chosen by parents.

Keywords: optimal income taxation; child care subsidies; tax deductibility; tax credit; public provision of private goods (search for similar items in EconPapers)
JEL-codes: H21 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
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