In an economy with distortionary taxes on labour, can subsidies on day care, financed by increased taxes, raise welfare by encouraging women with small children to work? We show, within a stylized life-cycle framework, that the Ramsey optimal policy consists in equalizing consumption/leisure...

In this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markov-perfect equilibria of the dynamic game between successive governments. The characterization consists of an...

In this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markov-perfect equilibria of the dynamic game between successive governments. The characterization consists of an...