Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282481 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10793
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun's "leaky bucket". We analyze the MECR of an income-contingent childcare subsidy program and the income tax within the German context, using a dynamic structural heterogeneous-household model of childcare demand and maternal labor supply. This allows us to compare which of these two policies is more efficient in achieving redistributive goals. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the income tax. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. For reasonably large Pareto weights on children, we find that (ii) dominates (i) and therefore the childcare subsidy is the more efficient redistribution tool.
Subjects: 
female labor supply
childcare
family policies
fiscal externalities
dynamic discrete choice
redistribution
JEL: 
H23
H31
J13
J22
J24
Document Type: 
Working Paper
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