Scandinavian Working Papers in Economics

Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

No 2011:3: Intergenerational transmission of skills during childhood and optimal public policy

Alessandra Casarico (), Luca Micheletto () and Alessandro Sommacal ()
Additional contact information
Alessandra Casarico: Bocconi University
Luca Micheletto: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Alessandro Sommacal: Faculty of Economics, University of Verona

Abstract: The paper characterizes the optimal tax policy and the optimal quality of day care services in a OLG model with warm-glow altruism where parental choices over child care arrangements affect the probability that the child becomes a high-skilled adult in a type-specific way. With respect to previous contributions, optimal tax formulas include type-specific Pigouvian terms which correct for the intergenerational externality in human capital accumulation. Our numerical simulations suggest that a public policy that disregards the effects of parental time on children's human capital entails a welfare loss that ranges from 0:2% to 5:7% of aggregate consumption.

Keywords: optimal taxation; day care quality; intergenerational transmission of skills; early childhood environment; warm-glow

JEL-codes: H21; H23; J13; J22; J24

53 pages, February 4, 2011

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