Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives

Herwig Immervoll and David Barber ()
Additional contact information
David Barber: affiliation not available

No 1932, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Childcare policies play a crucial role in helping parents reconcile care and employment-related tasks. This paper quantifies the net cost of purchasing full-time centre-based childcare in OECD countries taking into account a wide range of influences on household budgets, including fees charged by childcare providers as well as childcare-related tax concessions and cash benefits available to parents. Building on these calculations, family resources are evaluated for different employment situations in order to assess the financial trade-offs between work and staying at home. Results are disaggregated to identify the policy features that present barriers to work for parents whose employment decisions are known to be particularly responsive to financial work incentives: lone parents and second earners with young children requiring care. The results indicate that the cost of purchasing childcare services should be analysed in conjunction with other social and fiscal policies that affect family incomes. While childcare fees can be very high, high prices may not impede employment if tax-benefit systems incorporate well-balanced provisions that help parents pay for these services. Conversely, even highly subsidised childcare markets can leave parents with little financial gain from employment if high tax burdens or benefit claw-back rates give rise to adverse work incentives.

Keywords: childcare costs; labour supply; tax-benefit systems; work incentives (search for similar items in EconPapers)
JEL-codes: D13 H31 J13 J18 J22 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2006-01
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (24)

Published - updated and extended version published in: OECD (2007), Benefits and Wages : OECD Indicators

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Working Paper: Can Parents Afford to Work?: Childcare Costs, Tax-Benefit Policies and Work Incentives (2005)
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