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Child Care Assistance: Are Subsidies or Tax Credits Better?

  • Gong, Xiaodong

    ()

    (NATSEM, University of Canberra)

  • Breunig, Robert

    ()

    (Australian National University)

We evaluate price subsidies and tax credits for child care. We focus on partnered women's labor supply, household income and welfare, demand for formal and informal child care and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labor supply and child care demand. We introduce two methodological innovations: a quantity constraint that total formal and informal child care hours is at least as large as the mother's labor supply and child care explicitly included in the utility function as a proxy for child development. We find that tax credits are better than subsidies in terms of increasing average hours worked and household income. However, tax credits disproportionately benefit wealthier and more educated women. Price subsidies, while less efficient, have positive re-distributional effects.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6606.

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Length: 42 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6606
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  1. Robert Breunig & Deborah Cobb-Clark & Xiaodong Gong, 2005. "Improving the Modeling of Couples' Labour Supply," CEPR Discussion Papers 499, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
  3. Dreze, J. H. & Malinvaud, E., . "Growth and employment: the scope for a European initiative," CORE Discussion Papers RP -1082, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Andrew Leigh, 2007. "Returns to Education in Australia," CEPR Discussion Papers 561, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  5. Robert Breunig & Xiaodong Gong & Anthony King, 2012. "Partnered Women's Labour Supply and Child‐Care Costs in Australia: Measurement Error and the Child‐Care Price," The Economic Record, The Economic Society of Australia, vol. 88(s1), pages 51-69, 06.
  6. Raquel Bernal & Michael P. Keane, 2011. "Child Care Choices and Children’s Cognitive Achievement: The Case of Single Mothers," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 459 - 512.
  7. Charlene M. Kalenkoski & David C. Ribar & Leslie S. Stratton, 2005. "Parental Child Care in Single-Parent, Cohabiting, and Married-Couple Families: Time-Diary Evidence from the United Kingdom," American Economic Review, American Economic Association, vol. 95(2), pages 194-198, May.
  8. Lisa M. Powell, 2002. "Joint Labor Supply and Childcare Choice Decisions of Married Mothers," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 106-128.
  9. Alan Duncan & Gillian Paull & Jayne Taylor, 2001. "Mothers' employment and the use of childcare in the UK," IFS Working Papers W01/23, Institute for Fiscal Studies.
  10. Lee, Lung-Fei, 1992. "On Efficiency of Methods of Simulated Moments and Maximum Simulated Likelihood Estimation of Discrete Response Models," Econometric Theory, Cambridge University Press, vol. 8(04), pages 518-552, December.
  11. David M. Blau & Alison P. Hagy, 1998. "The Demand for Quality in Child Care," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 104-146, February.
  12. Gordon Cleveland & Morley Gunderson & Douglas Hyatt, 1996. "Child Care Costs and the Employment Decision of Women: Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 132-51, February.
  13. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, June.
  14. Ribar, David C, 1995. "A Structural Model of Child Care and the Labor Supply of Married Women," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 558-97, July.
  15. Rachel Connelly & Jean Kimmel, 2003. "Marital status and full-time/part-time work status in child care choices," Applied Economics, Taylor & Francis Journals, vol. 35(7), pages 761-777.
  16. David C. Ribar, 1992. "Child Care and the Labor Supply of Married Women: Reduced Form Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 27(1), pages 134-165.
  17. Sándor, Z. & Train, K., 2004. "Quasi-random simulation of discrete choice models," Econometric Institute Research Papers EI 2004-51, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  18. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
  19. Jean Kimmel & Rachel Connelly, 2007. "Mothers’ Time Choices: Caregiving, Leisure, Home Production, and Paid Work," Journal of Human Resources, University of Wisconsin Press, vol. 42(3).
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