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Family Policies and Child Skill Accumulation

Author

Listed:
  • Emily Moschini

    (College of William and Mary)

  • Monica Tran-Xuan

    (International Monetary Fund)

Abstract

We analyze the economic effects of two major family policies in the United States, the Child Tax Credit and the Child Care and Development Fund childcare subsidy, in an overlapping generations framework where altruistic parents invest in their child's skill using their own time and purchased childcare time. The model incorporates differences in the design of these policies and endogenizes low rates of childcare subsidy receipt by including application costs and subsequent rationing. We compare the effects of a recent child tax credit expansion with a spending-equivalent expansion of the childcare subsidy implemented by reducing access frictions. Across steady states, the childcare subsidy expansion generates a larger increase in average adult skill, which leads to larger welfare gains behind the veil of ignorance compared to the tax credit expansion. However, the two policies yield similar average welfare gains for adults who know their own skill level, and the tax credit benefits a larger share of this group. (Copyright: Elsevier)

Suggested Citation

  • Emily Moschini & Monica Tran-Xuan, 2025. "Family Policies and Child Skill Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 56, April.
  • Handle: RePEc:red:issued:23-184
    DOI: 10.1016/j.red.2025.101270
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    More about this item

    Keywords

    Childcare subsidy; Child tax credit; Early childhood; General equilibrium; Skill investment; Welfare;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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