A Regional Comparative Static CGE Analysis of Subsidized Child Care

Abstract

Concerns with the equity of societal income distribution typically underpin the provision of government subsidies to low-income households, in which such subsidies are commonly believed to reduce economic growth. Using a regional computable general equilibrium (CGE) model, this study examines the equity and growth aspects of subsidizing formal child care services for low-income households at the state level. The results suggest that state government subsidization of formal child care services does not necessarily reduce the level of economic activity, even when accounting for negative growth effects of tax increases required to finance the subsidies. The CGE model also reveals economic impacts on households and industry sectors not directly affected by the subsidies, impacts that would be omitted from a partial equilibrium microeconometric appraisal.