Equity and Efficiency of Childcare Subsidies: A Dynamic Structural Approach

Arbeitspapier

We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun's "leaky bucket". We analyze the MECR of an income-contingent childcare subsidy program and the income tax within the German context, using a dynamic structural heterogeneous-household model of childcare demand and maternal labor supply. This allows us to compare which of these two policies is more efficient in achieving redistributive goals. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the income tax. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. For reasonably large Pareto weights on children, we find that (ii) dominates (i) and therefore the childcare subsidy is the more efficient redistribution tool.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10793

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Fiscal Policies and Behavior of Economic Agents: Household ; Fertility; Family Planning; Child Care; Children; Youth ; Time Allocation and Labor Supply ; Human Capital; Skills; Occupational Choice; Labor Productivity
• Subject: female labor supply ; childcare ; family policies ; fiscal externalities ; dynamic discrete choice ; redistribution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koll, David ; Sachs, Dominik ; Stürmer-Heiber, Fabian ; Turon, Hélène
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/282481
• Last update: 10.03.2025, 11:42 AM CET