Childcare Assistance: Are Subsidies or Tax Credits Better?

Xiaodong GONG, Robert Breunig

    Research output: Contribution to journalArticle

    3 Citations (Scopus)

    Abstract

    We evaluate price subsidies and tax credits for childcare. We focus on partnered women's labour supply, household income and welfare, demand for childcare and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labour supply and childcare demand. We introduce two methodological innovations – a more flexible quantity constraint that total formal and informal childcare hours are at least as large as the mother's labour supply and the explicit inclusion of maternal childcare in the utility function as a proxy for child development. We find that tax credits are more effective 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 redistributional effects.
    Original languageEnglish
    Pages (from-to)7-48
    Number of pages42
    JournalFiscal Studies
    Volume38
    Issue number1
    DOIs
    Publication statusPublished - 1 Mar 2017

    Fingerprint

    Subsidies
    Child care
    Tax credits
    Labor supply
    Household income
    Inclusion
    Structural model
    Government expenditure
    Utility function
    Child development
    Household welfare
    Innovation
    Hours worked

    Cite this

    GONG, Xiaodong ; Breunig, Robert. / Childcare Assistance: Are Subsidies or Tax Credits Better?. In: Fiscal Studies. 2017 ; Vol. 38, No. 1. pp. 7-48.
    @article{57f1f10558d94980acf5bdac716632d8,
    title = "Childcare Assistance: Are Subsidies or Tax Credits Better?",
    abstract = "We evaluate price subsidies and tax credits for childcare. We focus on partnered women's labour supply, household income and welfare, demand for childcare and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labour supply and childcare demand. We introduce two methodological innovations – a more flexible quantity constraint that total formal and informal childcare hours are at least as large as the mother's labour supply and the explicit inclusion of maternal childcare in the utility function as a proxy for child development. We find that tax credits are more effective 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 redistributional effects.",
    keywords = "childcare, discrete choice model, elasticities, labour supply",
    author = "Xiaodong GONG and Robert Breunig",
    year = "2017",
    month = "3",
    day = "1",
    doi = "10.1111/1475-5890.12085",
    language = "English",
    volume = "38",
    pages = "7--48",
    journal = "Fiscal Studies",
    issn = "0143-5671",
    publisher = "Wiley-Blackwell",
    number = "1",

    }

    Childcare Assistance: Are Subsidies or Tax Credits Better? / GONG, Xiaodong; Breunig, Robert.

    In: Fiscal Studies, Vol. 38, No. 1, 01.03.2017, p. 7-48.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Childcare Assistance: Are Subsidies or Tax Credits Better?

    AU - GONG, Xiaodong

    AU - Breunig, Robert

    PY - 2017/3/1

    Y1 - 2017/3/1

    N2 - We evaluate price subsidies and tax credits for childcare. We focus on partnered women's labour supply, household income and welfare, demand for childcare and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labour supply and childcare demand. We introduce two methodological innovations – a more flexible quantity constraint that total formal and informal childcare hours are at least as large as the mother's labour supply and the explicit inclusion of maternal childcare in the utility function as a proxy for child development. We find that tax credits are more effective 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 redistributional effects.

    AB - We evaluate price subsidies and tax credits for childcare. We focus on partnered women's labour supply, household income and welfare, demand for childcare and government expenditure. Using Australian data, we estimate a joint, discrete structural model of labour supply and childcare demand. We introduce two methodological innovations – a more flexible quantity constraint that total formal and informal childcare hours are at least as large as the mother's labour supply and the explicit inclusion of maternal childcare in the utility function as a proxy for child development. We find that tax credits are more effective 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 redistributional effects.

    KW - childcare

    KW - discrete choice model

    KW - elasticities

    KW - labour supply

    UR - http://www.scopus.com/inward/record.url?scp=85013664487&partnerID=8YFLogxK

    U2 - 10.1111/1475-5890.12085

    DO - 10.1111/1475-5890.12085

    M3 - Article

    VL - 38

    SP - 7

    EP - 48

    JO - Fiscal Studies

    JF - Fiscal Studies

    SN - 0143-5671

    IS - 1

    ER -