To work or not to work? The effct of child-care subsidies on the labour supply of parents

Tuomas Kosonen

No 23, Working Papers from VATT Institute for Economic Research

Abstract: This paper studies the effect of child-care subsidies on maternal labour supply. In the Finnish child-care system, parents taking care of their children at home receive a relatively generous home-care allowance. I use variation arising from changes in the municipality-specific supplement to this allowance to identify the causal effect of subsidies on the labour force participation of parents. A municipal supplement creates plausibly exogenous variation in subsidies, since the opportunity to take them up depends on municipal-level rules, but not on changes in individual labour supply decisions. Moreover, a supplement policy affects labour supply in a transparent way since the amount of supplement one is eligible for does not depend on income. Robustness checks indicate that the results are not driven by policy endogeneity or residential sorting. I find a large negative effect on the labour force participation and income of mothers. 100 euros higher supplement per month reduces the maternal labour supply by 3 per cent. The estimated effect is larger for higher-educated than for mediumeducated mothers.

Keywords: Labour supply of parents, child care subsidies, participation tax rate, Taxation, Verotus, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, H200 - Taxation, Subsidies, and Revenue: General, J130 - Fertility; Family Planning; Child Care; Children; Youth, J220 - Time Allocation and Labor Supply (hours of work, part-time employment, temporary workers, work sharing, absenteeism, quits, work-life balance), (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-dem, nep-lab and nep-lma
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: To Work or Not to Work? The Effect of Childcare Subsidies on the Labour Supply of Parents (2014)
Working Paper: To Work or not to Work? The Effect of Child-Care Subsidies on the Labour Supply of Parents (2013)
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