Intergenerational Transmission of Skills During Childhood and Optimal Public Policy
49 Pages Posted: 14 Feb 2011
Date Written: February 14, 2011
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 Classification: H210, H230, J130, J220, J240
Suggested Citation: Suggested Citation