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Money or kindergarten? Distributive effects of cash versus in-kind family transfers for young children

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  • Michael Förster
  • Gerlinde Verbist

Abstract

Public support to families with pre-school children can be in the form of cash benefits (e.g. child allowances) or of “in-kind” support (e.g. care services such as kindergartens). The mix of these support measures varies greatly across OECD countries, from a cash / in-kind composition of 10%/90% to 80%/20%. This paper imputes the value of services into an “extended” household income and compares the resulting distributive patterns and the redistributive effect of these two strands of family policies. On average, cash and in-kind transfers each constitute 7 – 8% of the incomes of families with young children. Both instruments are redistributive. Cash transfers reduce child poverty by one third, with the estimated impacts in Austria, Ireland, Sweden, Hungary and Finland performing above average. When services are accounted for, child poverty falls by one quarter and poverty among children enrolled in childcare is more than halved. This reduction is highest in Belgium, France, Hungary, Iceland and Sweden. The paper also presents simulations in which cash transfers are replaced by services, and vice versa, to provide a better understanding of these effects. The results from these simulations do not allow us to draw “generalised” conclusions as to which of the two instruments fares “better”. However, in a majority of countries, if all in-kind spending on childcare were transformed into cash benefits, a lump-sum approach (i.e. a basic income supplement to all children) would be more effective in reducing poverty than an up-rating of present child benefits. The analysis in this paper is exploratory in that it considers only the first-round distributive effects of the policy instruments and does not capture additional indirect and longer-term redistributive effects, in particular possible labour supply effects and their potential impact on household incomes. The hypothetical simulations constitute extreme cases in that the entire volume of early childhood education and care (ECEC) services is replaced by cash transfers, and vice versa. The simulations nevertheless provide useful benchmarks for estimating potential losses or gains in redistribution when key elements of the early childhood policy mix are to be changed.

Suggested Citation

  • Michael Förster & Gerlinde Verbist, 2013. "Money or kindergarten? Distributive effects of cash versus in-kind family transfers for young children," ImPRovE Working Papers 13/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
  • Handle: RePEc:hdl:improv:1304
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    References listed on IDEAS

    as
    1. Aaberge, Rolf & Bhuller, Manudeep & Langørgen, Audun & Mogstad, Magne, 2010. "The distributional impact of public services when needs differ," Journal of Public Economics, Elsevier, pages 549-562.
    2. Rolf Aaberge & Audun Langørgen & Magne Mogstad & Marit Østensen, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," Discussion Papers 551, Statistics Norway, Research Department.
    3. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Economics Department Working Papers 486, OECD Publishing.
    4. Immervoll, Herwig & Richardson, Linda, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," IZA Discussion Papers 6030, Institute for the Study of Labor (IZA).
    5. Jonah B. Gelbach, 2002. "Public Schooling for Young Children and Maternal Labor Supply," American Economic Review, American Economic Association, pages 307-322.
    6. Irwin Garfinkel & Lee Rainwater & Timothy M. Smeeding, 2006. "A re-examination of welfare states and inequality in rich nations: How in-kind transfers and indirect taxes change the story," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(4), pages 897-919.
    7. Figari, Francesco & Paulus, Alari & Sutherland, Holly, 2009. "Measuring the size and impact of public cash support for children in cross-national perspective," ISER Working Paper Series 2009-24, Institute for Social and Economic Research.
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    11. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, pages 333-383.
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    Cited by:

    1. Volker Ziemann, 2015. "Towards more gender equality in Austria," OECD Economics Department Working Papers 1273, OECD Publishing.

    More about this item

    Keywords

    child poverty; income distribution; cash and in-kind transfers; family policy;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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