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

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Author Info
Herwig Immervoll () (OECD and IZA Bonn)
David Barber () (formerly OECD)

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Abstract

Childcare policies play a crucial role in helping parents reconcile care and employmentrelated 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.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1932.

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Length: 66 pages
Date of creation: Jan 2006
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Handle: RePEc:iza:izadps:dp1932

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Related research
Keywords: childcare costs; work incentives; labour supply; tax-benefit systems;

Other versions of this item:

Find related papers by JEL classification:
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Evridiki Tsounta, 2006. "Why are Women Working So Much More in Canada? An International Perspective," IMF Working Papers 06/92, International Monetary Fund. [Downloadable!]
  2. Johannes Geyer & Viktor Steiner, 2007. "Short-Run and Long-Term Effects of Childbirth on Mothers’ Employment and Working Hours Across Institutional Regimes: An Empirical Analysis Based on the European Community Household Panel," IZA Discussion Papers 2693, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Peter Haan & Katharina Wrohlich, 2007. "Optimal Taxation: The Design of Child Related Cash- and In-Kind-Benefits," IZA Discussion Papers 3128, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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