Do means-tested childcare subsidies discourage work?

Trine Engh Vattø () and Kjersti Misje Østbakken ()
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Trine Engh Vattø: Research Department, Statistics Norway
Kjersti Misje Østbakken: Institute for Social Research

Journal of Population Economics, 2024, vol. 37, issue 1, No 17, 31 pages

Abstract: Abstract We examine how means-tested childcare subsidies affect parental labor supply. Using the introduction of reduced childcare prices for low-income families in Norway in 2015, we show that these subsidies may have the unintended effect of discouraging work rather than promoting employment. First, structural labor supply simulations suggest that a negative parental labor supply effect dominates, ex ante. Ex post, we find a small and insignificant effect of means-tested childcare subsidies on parental labor supply in the reform year. We find no statistically significant bunching around the income limits in subsequent years, but we do find negative labor supply effects in subsequent expansions of the reform. Our results suggest that in a context where both parental employment and participation in formal childcare are high, means-tested childcare subsidies may have unintended parental labor supply effects.

Keywords: Labor supply; Subsidized childcare; Means-testing; Structural model; Regression discontinuity; Bunching; Event study (search for similar items in EconPapers)
JEL-codes: H31 J13 J22 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00148-024-00998-w

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