At Whose Service? Subsidizing Services and the Skill Premium

CentER Discussion Paper Series No. 2010-01

19 Pages Posted: 11 Jan 2010

See all articles by Bas van Groezen

Bas van Groezen

Tilburg University; Tilburg University - Center for Economic Research (CentER)

A. C. Meijdam

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics

Date Written: November 6, 2009

Abstract

In this paper we investigate the effects of subsidizing low-skilled, labourintensive services hired by high-skilled individuals in the presence of labour income taxation. Whether such a subsidy can be Paretoimproving 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

JEL Classification: D13, H24, H53, J13, J22, J24, O17

Suggested Citation

van Groezen, Bas J.A.M. and Meijdam, A.C. (Lex), At Whose Service? Subsidizing Services and the Skill Premium (November 6, 2009). CentER Discussion Paper Series No. 2010-01, Available at SSRN: https://ssrn.com/abstract=1534607 or http://dx.doi.org/10.2139/ssrn.1534607

Bas J.A.M. Van Groezen (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

A.C. (Lex) Meijdam

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 23 85 (Phone)
+31 13 466 30 42 (Fax)

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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