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

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Author Info

  • Immervoll, Herwig

    ()
    (OECD, Paris)

  • Barber, David

    ()
    (affiliation not available)

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.

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Bibliographic 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: 69 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:iza:izadps:dp1932

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

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Citations

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Cited by:
  1. repec:esr:chaptr:jacb201240 is not listed on IDEAS
  2. Haan, Peter & Wrohlich, Katharina, 2007. "Optimal Taxation: The Design of Child Related Cash- and In-Kind-Benefits," IZA Discussion Papers 3128, Institute for the Study of Labor (IZA).
  3. Katharina Wrohlich, 2006. "Labor Supply and Child Care Choices in a Rationed Child Care Market," Discussion Papers of DIW Berlin 570, DIW Berlin, German Institute for Economic Research.
  4. Pia S. Schober & Christian Schmitt, 2013. "Day-Care Expansion and Parental Subjective Well-Being: Evidence from Germany," SOEPpapers on Multidisciplinary Panel Data Research 602, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Callan, Tim, 2012. "Budget Perspectives 2013," Research Series, Economic and Social Research Institute (ESRI), Economic and Social Research Institute (ESRI), number RS28.
  6. FitzGerald, John, 2012. "Fiscal Policy for 2013 and Beyond," Papers, Economic and Social Research Institute (ESRI) BP2013/1, Economic and Social Research Institute (ESRI).
  7. Jonathan Bradshaw & Petra Hoelscher & Dominic Richardson, 2007. "An Index of Child Well-being in the European Union," Social Indicators Research, Springer, vol. 80(1), pages 133-177, January.
  8. Olivier Thevenon, 2009. "Does fertility respond to work and family reconciliation policies in France?," Working Papers hal-00424832, HAL.
  9. 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," Discussion Papers of DIW Berlin 682, DIW Berlin, German Institute for Economic Research.
  10. repec:esr:chaptr:jacb201239 is not listed on IDEAS
  11. Wim Van Lancker & Joris Ghysels, 2013. "Great expectations, but how to achieve them? Explaining patterns of inequality in childcare use across 31 developed countries," Working Papers 1305, Herman Deleeck Centre for Social Policy, University of Antwerp.
  12. Gosta Esping-Andersen, 2008. "Childhood investments and skill formation," International Tax and Public Finance, Springer, vol. 15(1), pages 19-44, February.
  13. Pia S. Schober & C. Katharina Spieß, 2014. "Local Day-Care Quality and Maternal Employment: Evidence from East and West Germany," SOEPpapers on Multidisciplinary Panel Data Research 649, DIW Berlin, The German Socio-Economic Panel (SOEP).
  14. Callan, Tim & Keane, Claire & Savage, Michael & Walsh, John R. & Timoney, Kevin, 2012. "Work Incentives: New Evidence for Ireland," Papers, Economic and Social Research Institute (ESRI) BP2013/3, Economic and Social Research Institute (ESRI).
  15. Evridiki Tsounta, 2006. "Why Are Women Working so Much More in Canada? An International Perspective," IMF Working Papers 06/92, International Monetary Fund.
  16. Matthias Wrede, 2011. "Hyperbolic discounting and fertility," Journal of Population Economics, Springer, vol. 24(3), pages 1053-1070, July.

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