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

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