Premium
Childcare Assistance: Are Subsidies or Tax Credits Better?
Author(s) -
Gong Xiaodong,
Breunig Robert
Publication year - 2017
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12085
Subject(s) - subsidy , economics , tax credit , labour economics , welfare , proxy (statistics) , constraint (computer aided design) , government (linguistics) , public economics , market economy , linguistics , philosophy , machine learning , computer science , mechanical engineering , engineering
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.