Daycare, Durables, and Credit Constraints: Evidence from Rio de Janeiro

There is some empirical evidence that access to daycare increases the incomes of households with young children, particularly through the expansion of female labor force participation in the extensive and intensive margins. Whether this boost persists even as children grow and enroll in school, however, is less clear. This paper uses data from the extension of a public daycare program in Rio de Janeiro in 2008 to study the impact of access to daycare not only on income, but also on households’ living standards in the short- and long-term. We find evidence that while participation in daycare increases income only in the short-run, its effect on the ownership of durable goods persists even once focal children are no longer age-eligible for daycare. Using a credit constraint framework, the results in the paper indicate that the small, temporary income increase provided by access to daycare has a long-lasting effect on living conditions and, consequently, child development, as it fills in a gap left by a lack of access to credit.