Assignment 6
(Due October 28)
Read pp. 355-360, 373-383 and 440-445 of Rosen's Public Finance which is on E-Reserve & review relevant sections of the class presentation "Legislation & Administrative Law" (including the analysis of the Florida Sliding Fee Scale in the Excel spreadsheet).
Efficiency of Sliding Fee Scale
(1) Does your state's sliding fee scale distort parental choice of child care? How?
Work Needed to Answer this question
Note: the sliding fee scale will not affect parental choice if the relative prices of different types of care are the same under the sliding fee schedule as they are on the open market (market prices for child care are available from your state's Market Rate Survey (MRS)). To answer this question, use your state's MRS (Attachment 3.2B) to calculate relative prices in one market area of your state for preschoolers for different types of care. If your state didn't attach the survey it may be available at http://nccic.acf.hhs.gov/poptopics/mrsmethods.html.
To be more specific, divide the price at the 75th%ile of market prices for the care of preschoolers (generally children age 3-5) in child care centers by the price at the 75th%ile of market prices for the care of preschoolers in family child care homes (if the state has different rates for large and regular family child care use the price for regular family child care). Divide the price at the 75th%ile of market prices for the care of preschoolers in child care centers by the price the state pays for preschool care in informal care if market prices for informal care are available. Finally, divide the price at the 75th%ile of market prices for for the care of preschoolers (children age 3-5) in family child care home by the price the state pays for preschool care in informal care if market prices for informal care are available.
Calculate the same relative prices under the sliding fee scale.
Compare the relative prices of care under the sliding fee scale with the relative prices of care you calculated using prices in the Market Rate Survey.
(2) Does your state's sliding fee scale seem likely to have low, medium or high work disincentive effects. Explain using the marginal tax rates that you calculate in your spreadsheet (see description of calculations below in mauve).
Work Needed to Answer this question
Carefully analyze the sliding fee scale used by your state using Excel or an alternative spreadsheet software. First, calculate Marginal Tax Rates for a family of 3 with a preschooler in care for all eligible income levels. Next, calculate the tax rates that would occur when the family's income increases sufficiently that the family is no longer eligible for child care subsidies, but keeps their child in the same type of care. Assume that the family will pay the market rate for care when they are no longer eligible for subsidies.
(3) Does your state sliding fee scale seem as if it would have relatively high or relatively low administrative/transaction costs? Explain briefly.
Equity of Sliding Fee Scale
(4) Using Section 3.5 & Attachment 3.5.1 of your state's CCDF Plan--"Sliding Fee Scale for Child Care Services"-- discuss what type of families are required to pay part of the cost of their child care. Does it seem equitable to exclude the families that do not make co-payments in your state. Be sure to discuss both horizontal and vertical equity and to indicate how you are defining equally situated.
(5) Does the sliding fee scale appear to be vertically equitable (families with lesser ability to pay pay less)? horizontally equitable (families with equal ability to pay pay equal amounts). Be sure to indicate how you are defining equally situated.
Work Needed to Answer this Question
To answer this question calculate Average Tax Rates for a family of 3 with a preschooler in care for all eligible income levels.
Improving the Sliding Fee Scale
Using your knowledge of tax law (Rosen readings on E-Reserve) and class presentations, indicate how the sliding fee scale that your state is using could be made more efficient and equitable. Be specific.
What to Turn In
Turn in the following three items: (1) answers to the above questions, (2) a table that contains the three sets of relative prices you have calculated (relative prices calculated using state reimbursement rates (calculated for Assignment 5), relative market prices using the prices at the 75th%ile of market prices from the MRS & the relative prices faced by parents subject to the sliding fee scale) and (3) a spreadsheet that contains the marginal & average tax rates you calculated to answer the above questions.
You should turn in the above items to the correct folder in First Class before class on Thursday, October 28. We will discuss your answers to all of the above questions in class on October 28. We will also discuss what the implications of the relative prices in your relative price table are for the supply & demand for subsidized care in your state.
© Ann Dryden Witte 1999