Child Care Assistance: Are Subsidies or Tax Credits Better?

Xiaodong Gong () and Robert Breunig

No 6606, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We evaluate price subsidies and tax credits for child care. We focus on partnered women's labor supply, household income and welfare, demand for formal and informal child care and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labor supply and child care demand. We introduce two methodological innovations: a quantity constraint that total formal and informal child care hours is at least as large as the mother's labor supply and child care explicitly included in the utility function as a proxy for child development. We find that tax credits are better than subsidies in terms of increasing average hours worked and household income. However, tax credits disproportionately benefit wealthier and more educated women. Price subsidies, while less efficient, have positive re-distributional effects.

Keywords: discrete choice model; elasticities; labor supply; child care (search for similar items in EconPapers)
JEL-codes: C15 C35 J22 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-05
New Economics Papers: this item is included in nep-dcm, nep-dem and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published - published in: Fiscal Studies, 2017, 38 (1), 7 - 48

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Journal Article: Childcare Assistance: Are Subsidies or Tax Credits Better? (2017)
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