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 |
|---|---|
| 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 |
|---|---|
| No. | 30 |
| Volume | 09 |
| ISSN (Electronic) | 2666-8238 |
Keywords
- household production
- services
- skill premium
- subsidy
- wage tax