Suppose the spouse of the primary earner in the household is considering joining the labor force.The spouse currently cares for two children and,if employed,would earn $20 per hour for 40 hours per week.The cost of child care would be $10 per hour for 50 (not 40)hours per week.Assume that the marginal tax rate on work is 50%.Assume that child care is tax deductible and that child care at home is NOT imputed and taxed.What is the after-tax,after-child-care addition to family income of the spouse working each week?

Question

Quizplus · Accepted Answer

The spouse would earn $20 * 40 = $800 per week before taxes.
Child care would cost $10/hour * 50 hours = $500 per week.
Child care is tax deductible, so the actual cost would be $500 * (1-0.5) = $250 per week after taxes.
The after-tax income of the spouse working would be $800 * (1-0.5) = $400 per week.
Therefore, the after-tax, after-child-care addition to family income would be $400 - $250 = $150 per week.

Suppose the Spouse of the Primary Earner in the Household