The Distributional Effects of the Tax Treatment of Child Care Expenses

William Gentry and Alison P. Hagy

No 5088, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Tax relief for child care expenses, encompassing the Child Care Tax Credit and Dependent Care Assistance Plans, is the largest federal government program in the United States aimed at helping families with child care. We examine the distributional effects of these policies among families with children using both the National Child Care Survey and tax return data. Among families that use tax relief, the benefits average 1.24 percent of family income. Benefits as a percentage of income vary systematically over the income distribution. Despite being regressive at low income levels (mainly due to the credit being non-refundable), tax relief is progressively distributed over most of the income distribution with the ratio of benefits to income falling above the bottom quintile of the income distribution. The benefits of tax relief also vary among families with the same income depending on a family's structure and its labor market and child care choices.

Date: 1995-04
Note: PE
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Published as Empirical Foundations of Household Taxation, Martin Feldstein and James M. Poterba, eds., University of Chicago Press, 1996, pp. 99-128
Published as The Distributional Effects of the Tax Treatment of Child Care Expenses , William M. Gentry, Alison P. Hagy. in Empirical Foundations of Household Taxation , Feldstein and Poterba. 1996

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Chapter: The Distributional Effects of the Tax Treatment of Child Care Expenses (1996)
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