The Effectiveness of Fiscal Stimuli for Working Parents

49 Pages Posted: 8 Oct 2015

See all articles by Henk-Wim de Boer

Henk-Wim de Boer

CPB Netherlands Bureau of Economic Policy Analysis

Egbert Jongen

CPB Netherlands Bureau of Economic Policy Analysis

Jan Kabatek

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; IZA; Netspar

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2015

Abstract

To promote the labor participation of parents with young children, governments employ a number of fiscal instruments. Prominent examples are childcare subsidies and in-work benefits. However, which policy works best for employment is largely unknown. We study the effectiveness of different fiscal stimuli in an empirical model of household labor supply and childcare use. We use a large and rich administrative data set for the Netherlands. Large-scale reforms in childcare subsidies and in-work benefits in the data period facilitate the identification of the structural parameters. We find that an in-work benefit for secondary earners that increases with income is the most effective way to stimulate total hours worked. Childcare subsidies are less effective, as substitution of other types of care for formal care drives up public expenditures. In-work benefits that target both primary and secondary earners are much less effective, because primary earners are rather unresponsive to financial incentives.

Keywords: Discrete choice, household labor supply, latent classes, differences-in-differences, work and care policies

JEL Classification: C25, C52, H31, J22

Suggested Citation

de Boer, Henk-Wim and Jongen, Egbert and Kabatek, Jan, The Effectiveness of Fiscal Stimuli for Working Parents (September 30, 2015). Melbourne Institute Working Paper No. 19/15. Available at SSRN: https://ssrn.com/abstract=2671080 or http://dx.doi.org/10.2139/ssrn.2671080

Henk-Wim De Boer (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Egbert Jongen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Jan Kabatek

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA ( email )

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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