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Do means-tested childcare subsidies discourage work?

Author

Listed:
  • Trine Engh Vattø

    (Research Department, Statistics Norway)

  • Kjersti Misje Østbakken

    (Institute for Social Research)

Abstract

We examine how means-tested childcare subsidies affect parental labor supply. Using the introduction of reduced childcare prices for low-income families in Norway in 2015, we show that these subsidies may have the unintended effect of discouraging work rather than promoting employment. First, structural labor supply simulations suggest that a negative parental labor supply effect dominates, ex ante. Ex post, we find a small and insignificant effect of means-tested childcare subsidies on parental labor supply in the reform year. We find no statistically significant bunching around the income limits in subsequent years, but we do find negative labor supply effects in subsequent expansions of the reform. Our results suggest that in a context where both parental employment and participation in formal childcare are high, means-tested childcare subsidies may have unintended parental labor supply effects.

Suggested Citation

  • Trine Engh Vattø & Kjersti Misje Østbakken, 2024. "Do means-tested childcare subsidies discourage work?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 37(1), pages 1-31, March.
    • Handle: RePEc:spr:jopoec:v:37:y:2024:i:1:d:10.1007_s00148-024-00998-w
    DOI: 10.1007/s00148-024-00998-w
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    More about this item

    Keywords

    Labor supply; Subsidized childcare; Means-testing; Structural model; Regression discontinuity; Bunching; Event study;
    All these keywords.

    JEL classification:

    • 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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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