Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322813 
Year of Publication: 
2009
Series/Report no.: 
Discussion Papers Series No. 09-30
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
In this paper we investigate the effects of subsidizing low-skilled, labour-intensive services hired by high-skilled individuals in the presence of labour income taxation. Whether such a subsidy can be Pareto-improving 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.
Subjects: 
household production
services
skill premium
subsidy
wage tax
Document Type: 
Working Paper

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