Public Provision,Commodity Demand,and Hours of Work: An Empirical Analysis

The theoretical analysis of optimal commodity taxation is advanced, but there is only limited empirical evidence to guide commodity tax policies. With this paper, we contribute to this body of literature by empirically examining, using Finnish consumption data, the relation between working hours, consumption demand, and the use of publicly provided day care. When labour income is controlled for in a non‐parametric way, we find that capital income and housing expenses are negatively associated with working hours, whereas the use of childcare is positively correlated with working hours. These results provide arguments for taxing capital income and housing, and for subsidizing day care.