The joint decision of labour supply and childcare in Italy under costs and availability constraints

It is widely recognized that childcare has important pedagogical, economic and social effects on both children and parents. This paper is the first attempt to estimate a joint structural model of labour supply and childcare decision applied to Italy. Such an approach is particularly informative given that it allows one to estimate the changes in family choices under different policy simulation scenarios, evaluating the effects on labour supply and childcare usage and the potential consequences for household income.We analyse how maternal labour supply and childcare usage can be affected by relaxing the existing constraints in terms of childcare availability and costs by considering public, private and informal childcare, with related imputed availability and costs and their interaction with the whole tax-benefit system.Due to the regional differences, costs and effects are highly differentiated among different areas of the country. Results suggest that Italian households might alter their childcare and labour supply decisions substantially if the coverage rate of formal childcare increases, in particular if the increase would correspond to the increase needed to reach the European target in the Southern regions. Overall, increasing child care coverage is estimated to be more effective in enhancing labour incentives than decreasing existing child care costs, at the same budgetary cost. However, the potential effects on the disposable income are larger in the latter scenario because decreasing the childcare costs is beneficial also for women who do not change their labour supply behaviour.