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The Distributional Effects of the Tax Treatment of Child Care Expenses

In: Empirical Foundations of Household Taxation

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  • William M. Gentry
  • Alison P. Hagy

Abstract

Tax relief for child care expenses, encompassing the Child Care Tax Credit and Dependent Care Assistance Plans, is the largest federal government program in the United States aimed at helping families with child care. We examine the distributional effects of these policies among families with children using both the National Child Care Survey and tax return data. Among families that use tax relief, the benefits average 1.24 percent of family income. Benefits as a percentage of income vary systematically over the income distribution. Despite being regressive at low income levels (mainly due to the credit being non-refundable), tax relief is progressively distributed over most of the income distribution with the ratio of benefits to income falling above the bottom quintile of the income distribution. The benefits of tax relief also vary among families with the same income depending on a family's structure and its labor market and child care choices.
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Suggested Citation

  • William M. Gentry & Alison P. Hagy, 1996. "The Distributional Effects of the Tax Treatment of Child Care Expenses," NBER Chapters, in: Empirical Foundations of Household Taxation, pages 99-134, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6238
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    References listed on IDEAS

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    1. Blau, David M & Robins, Philip K, 1988. "Child-Care Costs and Family Labor Supply," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 374-381, August.
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    5. Altshuler, Rosanne & Schwartz, Amy Ellen, 1996. "On the Progressivity of the Child Care Tax Credit: Snapshot Versus Time-Exposure Incidence," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(1), pages 55-71, March.
    6. Heckman, James J, 1974. "Effects of Child-Care Programs on Women's Work Effort," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 136-163, Part II, .
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    Cited by:

    1. Gabrielle Pepin, 2022. "How Would a Permanently Refundable Child and Dependent Care Credit Affect Eligibility, Benefits, and Incentives?," Public Finance Review, , vol. 50(1), pages 33-61, January.
    2. Maria-Isabel Farfan-Portet & Vincent Lorant & Francesca Petrella, 2011. "Access to Childcare Services: The Role of Demand and Supply-Side Policies," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 30(2), pages 165-183, April.
    3. Patricia Apps, 2002. "Why an Earned income tax credit program is a mistake for Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(4), pages 549-568, December.
    4. Patricia M. Anderson & Philip B. Levine, 1999. "Child Care and Mothers' Employment Decisions," NBER Working Papers 7058, National Bureau of Economic Research, Inc.
    5. David T. Ellwood & Jeffrey B. Liebman, 2001. "The Middle-Class Parent Penalty: Child Benefits in the US Tax Code," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 1-40, National Bureau of Economic Research, Inc.

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