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.
|Place of Publication||Tilburg|
|Number of pages||19|
|Publication status||Published - 2010|
|Name||CentER Discussion Paper|
- household production
- skill premium
- wage tax