Having it All, for All: Child-Care Subsidies and Income Distribution Reconciled

39 Pages Posted: 10 Nov 2019

See all articles by Francesca Barigozzi

Francesca Barigozzi

University of Bologna - Department of Economics

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Kerstin Roeder

Ludwig Maximilian University of Munich (LMU); University of Augsburg

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Abstract

We study the design of child-care policies when redistribution matters. Traditional mothers provide some informal child care, whereas career mothers purchase full time formal care. The sorting of women across career paths is endogenous and shaped by a social norm about gender roles in the family. Via this social norm traditional mothers' informal child care imposes an externality on career mothers, so that the market outcome is inefficient. Informal care is too large and the group of career mothers is too small so that inefficiency and gender inequality go hand in hand. In a first-best world redistribution across couples and efficiency are separable. Redistribution is performed via lump-sum transfers and taxes which are designed to equalize utilities across all couples.The efficient allocation of child care is obtained by subsidizing formal care at a Pigouvian rate. However, in a second-best setting, a trade-off between efficiency and redistribution emerges. The optimal uniform subsidy is lower than the "Pigouvian" level. Conversely, under a non-linear policy the first-best "Pigouvian" rule for the (marginal) subsidy on informal care is reestablished. While the share of high career mothers continues to be distorted downward for incentive reasons, this policy is effective in reconciling the objectives of reducing the child care related inefficiency and achieving a more equal income distribution across couples. Our results continue to hold when the social norm is defined within the mothers' social group, rather than being based on the entire population.

Keywords: social norms, child-care, women's career choices, child care subsidies, redistribution of income

JEL Classification: D13, H23, J16, J22

Suggested Citation

Barigozzi, Francesca and Cremer, Helmuth and Roeder, Kerstin, Having it All, for All: Child-Care Subsidies and Income Distribution Reconciled. IZA Discussion Paper No. 12718, Available at SSRN: https://ssrn.com/abstract=3483956

Francesca Barigozzi (Contact Author)

University of Bologna - Department of Economics ( email )

P.zza Scaravilli 2
40126 Bologna, 40126
Italy

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Kerstin Roeder

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

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