At Whose Service? Subsidizing Services and the Skill Premium

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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.
Original languageEnglish
Place of PublicationTilburg
Number of pages19
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper



  • household production
  • services
  • skill premium
  • subsidy
  • wage tax

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