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.
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.
Original language | English |
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Place of Publication | Utrecht |
Publisher | UU USE Tjalling C. Koopmans Research Institute |
Number of pages | 17 |
Publication status | Published - Nov 2009 |
Publication series
Name | Discussion Paper Series / Tjalling C. Koopmans Research Institute |
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No. | 30 |
Volume | 09 |
ISSN (Electronic) | 2666-8238 |
Keywords
- household production
- services
- skill premium
- subsidy
- wage tax