Direct or indirect subsidies? Optimal childcare subsidy and application to China

Qin Xiao, Ye Deng, Chunping Zhong, Mengjiao Wang and Yuechuan Zhao

Applied Economics, 2024, vol. 56, issue 2, 233-248

Abstract: This paper examines the optimal design of childcare subsidies and how subsidies are implemented. We combine the optimal subsidy model with the situation in China and construct the optimal childcare subsidy model using families as units. We discuss the selection patterns of direct and indirect subsidies and prove the applicable ranges and selection thresholds for different subsidy types. Based on the CFPS database in China, we simulate the amount of childcare subsidies for families with different levels of market productivity and calculate the optimal amount of subsidies for them. The results show that direct subsidies should be provided to families whose wages are lower than the market price of childcare. Indirect subsidies should be provided to families whose wages are above the market price for childcare. Finally, the optimal child-rearing subsidy curve is derived, and the easily identifiable macro optimal subsidy curve is designed for implementation.

Date: 2024
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DOI: 10.1080/00036846.2023.2275222

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