Quantitative evidence on the welfare effects of home sector fiscal policy

A home production model that explicitly accounts for taxes and public expenditures on day-care and elder-care, substitutes for work households perform at home, is used to evaluate the welfare implications of alternative public expenditure policies. Both subsidy and workfare policies are welfare improving relative to a model where tax revenues are rebated lump sum. The welfare gains from optimal home sector policy design can be large.

► Public transfer of services that substitute for home work can be welfare improving. ► Small subsidies can have a large welfare effects in low tax economies. ► Workfare policies are preferred in high tax/high public expenditure economies. ► Low tax/low public expenditure economies prefer subsidy policies. ► The potential welfare gains from improved policy design are large.