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The Distributional Effects of the Tax Treatment of Child Care Expenses

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  • William M. Gentry
  • Alison P. Hagy

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5088.

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Date of creation: Apr 1995
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Publication status: published as Empirical Foundations of Household Taxation, Martin Feldstein and James M. Poterba, eds., University of Chicago Press, 1996, pp. 99-128
Handle: RePEc:nbr:nberwo:5088

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  1. Michael Krashinsky, 1981. "Subsidies To Child Care: Public Policy and Optimality," Public Finance Review, , , vol. 9(3), pages 243-269, July.
  2. Rosanne Altshuler & Amy Ellen Schwartz, 1996. "On the Progressivity of the Child Care Tax Credit: Snapshot versus Time-Exposure Incidence," Departmental Working Papers, Rutgers University, Department of Economics 199416, Rutgers University, Department of Economics.
  3. Blau, David M & Robins, Philip K, 1988. "Child-Care Costs and Family Labor Supply," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 374-81, August.
  4. Connelly, Rachel, 1992. "The Effect of Child Care Costs on Married Women's Labor Force Participation," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 83-90, February.
  5. Ribar, D.C., 1990. "Child Care And The Labor Supply Of Married Women: Reducted Form Evidence," Papers, Pennsylvania State - Department of Economics 9-90-9, Pennsylvania State - Department of Economics.
  6. Charles Michalopoulos & Philip K. Robins & Irwin Garfinkel, 1992. "A Structural Model of Labor Supply and Child Care Demand," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 166-203.
  7. Martin Feldstein & Daniel Feenberg, 1995. "The Taxation of Two Earner Families," NBER Working Papers 5155, National Bureau of Economic Research, Inc.
  8. Heckman, James J, 1974. "Effects of Child-Care Programs on Women's Work Effort," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(2), pages S136-S163, Part II, .
  9. Dunbar, Amy & Nordhauser, Susan, 1991. "Is the Child Care Credit Progressive?," National Tax Journal, National Tax Association, vol. 44(4), pages 519-28, December.
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Cited by:
  1. Maria-Isabel Farfan-Portet & Vincent Lorant & Francesca Petrella, 2011. "Access to Childcare Services: The Role of Demand and Supply-Side Policies," Population Research and Policy Review, Springer, Springer, vol. 30(2), pages 165-183, April.
  2. Patricia Apps, 2002. "Why an Earned income tax credit program is a mistake for Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(4), pages 549-568, December.
  3. David T. Ellwood & Jeffrey B. Liebman, 2001. "The Middle-Class Parent Penalty: Child Benefits in the U.S. Tax Code," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 1-40 National Bureau of Economic Research, Inc.
  4. Patricia M. Anderson & Phillip B. Levine, 1999. "Child Care and Mothers' Employment Decisions," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 64, Northwestern University/University of Chicago Joint Center for Poverty Research.

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