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

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  • Immervoll, Herwig

    () (OECD)

  • 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.

Suggested Citation

  • Immervoll, Herwig & Barber, David, 2006. "Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives," IZA Discussion Papers 1932, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1932
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    Cited by:

    1. Callan, Tim, 2012. "Budget Perspectives 2013," Research Series, Economic and Social Research Institute (ESRI), number RS28.
    2. Peter Haan & Katharina Wrohlich, 2010. "Optimal Taxation: The Design of Child-Related Cash and In-Kind Benefits," German Economic Review, Verein für Socialpolitik, vol. 11, pages 278-301, August.
    3. 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.
    4. Jonathan Bradshaw & Petra Hoelscher & Dominic Richardson, 2007. "An Index of Child Well-being in the European Union," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 80(1), pages 133-177, January.
    5. 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.
    6. Bick, Alexander & Fuchs-Schündeln, Nicola, 2012. "Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis," CEPR Discussion Papers 9115, C.E.P.R. Discussion Papers.
    7. Filgueira, Fernando & Rossel, Cecilia, 2017. "Confronting inequality: Social protection for families and early childhood through monetary transfers and care worldwide," Políticas Sociales 226, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Matthias Wrede, 2011. "Hyperbolic discounting and fertility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(3), pages 1053-1070, July.
    9. Evridiki Tsounta, 2006. "Why Are Women Working So Much More in Canada? An International Perspective," IMF Working Papers 06/92, International Monetary Fund.
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    12. Pia S. Schober & Gundula Zoch, 2015. "Change in the Gender Division of Domestic Work after Mummy or Daddy Took Leave: An Examination of Alternative Explanations," SOEPpapers on Multidisciplinary Panel Data Research 803, DIW Berlin, The German Socio-Economic Panel (SOEP).
    13. 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).
    14. 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.
    15. FitzGerald, John, 2012. "Fiscal Policy for 2013 and Beyond," Papers BP2013/1, Economic and Social Research Institute (ESRI).
    16. 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).
    17. repec:esr:chaptr:jacb201240 is not listed on IDEAS
    18. Gosta Esping-Andersen, 2008. "Childhood investments and skill formation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(1), pages 19-44, February.
    19. repec:esr:chaptr:jacb201239 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • 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
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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