Child-Related Transfers, Household Labor Supply and Welfare

104 Pages Posted: 17 Jan 2017

See all articles by Nezih Guner

Nezih Guner

Centre for Monetary and Financial Studies (CEMFI)

Remzi Kaygusuz

Tilburg University

Gustavo Ventura

Arizona State University (ASU)

Date Written: January 2017


What are the macroeconomic and welfare effects of expanding transfers to households with children in the United States? How do childcare subsidies compare to alternative policies? We answer these questions in a life-cycle equilibrium model with household labor-supply decisions, skill losses of females associated to non participation, and heterogeneity in terms of fertility, childcare expenditures and access to informal care. We consider the expansion of transfers that are contingent on market work -- childcare subsidies and Child and Dependent Care Tax Credits (CDCTC) -- versus those that are not -- Child Tax Credits (CTC). We find that expansions of transfers of the first group have substantial positive effects on female labor supply, that are largest at the bottom of the skill distribution. Universal childcare subsidies at a 75% rate lead to long-run increases in the participation of married females of 8.8%, while an equivalent expansion of the CTC program leads to the opposite -- a reduction of about 2.4%. We find that welfare gains of newborn households are substantial and up to 2.3% under the CDCTC expansion. The expansion of none of the existing programs, however, receives majority support at the time of its implementation. Our findings show substantial heterogeneity in welfare effects, with a small fraction of households -- young and poorer households with children -- who gain significantly while many others lose.

Keywords: Child-Related Transfers, childcare, Household Labor Supply

JEL Classification: E62, H24, H31

Suggested Citation

Guner, Nezih and Kaygusuz, Remzi and Ventura, Gustavo, Child-Related Transfers, Household Labor Supply and Welfare (January 2017). CEPR Discussion Paper No. DP11779, Available at SSRN:

Nezih Guner (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid

Remzi Kaygusuz

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE

Gustavo Ventura

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

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