At whose service? Subsidizing services and the skill premium
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Publication date
2009-11
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Working paper
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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.
Keywords
household production, services, skill premium, subsidy, wage tax
Citation
van Groezen, B & Meijdam, L 2009 'At whose service? Subsidizing services and the skill premium' Discussion Paper Series / Tjalling C. Koopmans Research Institute, no. 30, vol. 09, UU USE Tjalling C. Koopmans Research Institute, Utrecht.