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Optimal Disability Insurance with Informal Child Care

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  • Ho Christine

    (School of Economics, Singapore Management University, 90 Stamford Road, Singapore178903, Singapore)

Abstract

The possibility of engaging in household child care may exacerbate the incentives of parents and grandparents to falsely claim disability benefits as households also get to save on formal child care costs. This paper considers a multi-generational family model with persistence in privately observed shocks and presents an efficient implementation case for subsidizing formal child care costs of the disabled. An implementation of the optimal scheme that consists of capped formal day care subsidies, non-linear income taxation and asset-testing is proposed. Simulations based on a parametrization that targets key features of the US labor and child care markets suggest that day care subsidies may lead to sizeable cost savings.

Suggested Citation

  • Ho Christine, 2019. "Optimal Disability Insurance with Informal Child Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(2), pages 1-42, April.
    • Handle: RePEc:bpj:bejeap:v:19:y:2019:i:2:p:42:n:5
    DOI: 10.1515/bejeap-2018-0082
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    More about this item

    Keywords

    disability insurance; day care subsidies; multi-member family;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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