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Child Care Assistance: Are Subsidies or Tax Credits Better?

Author

Listed:
  • Gong, Xiaodong

    () (NATSEM, University of Canberra)

  • Breunig, Robert

    () (Australian National University)

Abstract

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.

Suggested Citation

  • Gong, Xiaodong & Breunig, Robert, 2012. "Child Care Assistance: Are Subsidies or Tax Credits Better?," IZA Discussion Papers 6606, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6606
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    References listed on IDEAS

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    Cited by:

    1. Lina Cardona-Sosa & Leonardo Morales, 2015. "Efectos laborales de los servicios de cuidado infantil: evidencia del programa Buen Comienzo," BORRADORES DE ECONOMIA 012787, BANCO DE LA REPÚBLICA.
    2. Henk-Wim de Boer & Egbert Jongen & Jan Kabatek, 2014. "The effectiveness of fiscal stimuli for working parents," CPB Discussion Paper 286, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Xiaodong Gong & Robert Breunig, 2014. "Channels of labour supply responses of lone parents to changed work incentives," Oxford Economic Papers, Oxford University Press, vol. 66(4), pages 916-939.

    More about this item

    Keywords

    child care; labor supply; elasticities; discrete choice model;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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