Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse cares for two children and if employed would earn $20 per hour for 40 hours per week.The total 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 NOT tax deductible and that child care at home is imputed and taxed.How much more would the government collect in tax revenues if the spouse chose to join the labor force rather than stay at home?

Question

Quizplus · Accepted Answer

The spouse would earn $800 per week before taxes. After taxes, the spouse would earn $400 per week. The cost of child care would be $500 per week. The spouse would therefore have a net income of -$100 per week. The government would collect $50 in taxes on this income. If the spouse stayed at home, the government would collect no taxes. Therefore, the government would collect $50 more in tax revenues if the spouse chose to join the labor force rather than stay at home.

Suppose That the Spouse of the Primary Earner in the Household