IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_10793.html
   My bibliography  Save this paper

Equity and Efficiency of Childcare Subsidies: A Dynamic Structural Approach

Author

Listed:
  • David Koll
  • Dominik Sachs
  • Fabian Stürmer-Heiber
  • Hélène Turon

Abstract

We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket”. We analyze the MECR of an income-contingent childcare subsidy program and the income tax within the German context, using a dynamic structural heterogeneous-household model of childcare demand and maternal labor supply. This allows us to compare which of these two policies is more efficient in achieving redistributive goals. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the income tax. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. For reasonably large Pareto weights on children, we find that (ii) dominates (i) and therefore the childcare subsidy is the more efficient redistribution tool.

Suggested Citation

  • David Koll & Dominik Sachs & Fabian Stürmer-Heiber & Hélène Turon, 2023. "Equity and Efficiency of Childcare Subsidies: A Dynamic Structural Approach," CESifo Working Paper Series 10793, CESifo.
    • Handle: RePEc:ces:ceswps:_10793
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10793.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Haan, Peter & Wrohlich, Katharina, 2011. "Can child care policy encourage employment and fertility?: Evidence from a structural model," Labour Economics, Elsevier, vol. 18(4), pages 498-512, August.
    2. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    3. Thomas Cornelissen & Christian Dustmann & Anna Raute & Uta Schönberg, 2018. "Who Benefits from Universal Child Care? Estimating Marginal Returns to Early Child Care Attendance," Journal of Political Economy, University of Chicago Press, vol. 126(6), pages 2356-2409.
    4. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    5. Saez, Emmanuel & Stantcheva, Stefanie, 2018. "A simpler theory of optimal capital taxation," Journal of Public Economics, Elsevier, vol. 162(C), pages 120-142.
    6. Mikhail Golosov & Michael Graber & Magne Mogstad & David Novgorodsky, 2024. "How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(2), pages 1321-1395.
    7. Teodora Boneva & Christopher Rauh, 2018. "Parental Beliefs about Returns to Educational Investments—The Later the Better?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1669-1711.
    8. Joseph Mullins, 2022. "Designing Cash Transfers in the Presence of Children's Human Capital Formation," Working Papers 2022-019, Human Capital and Economic Opportunity Working Group.
    9. Mikhail Golosov & Aleh Tsyvinski & Nicolas Werquin, 2014. "A Variational Approach to the Analysis of Tax Systems," NBER Working Papers 20780, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Koll & Dominik Sachs & Fabian Stürmer-Heiber & Hélène Turon, 2024. "Quantifying Okun’s Leaky Bucket: The Case of Progressive Childcare Subsidies," CESifo Working Paper Series 11196, CESifo.
    2. Albert Jan Hummel, 2021. "Unemployment and tax design," Tinbergen Institute Discussion Papers 21-061/VI, Tinbergen Institute.
    3. Albert Jan Hummel, 2021. "Unemployment and Tax Design," CESifo Working Paper Series 9177, CESifo.
    4. Stefanie Stantcheva, 2020. "Dynamic Taxation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 801-831, August.
    5. Findeisen, Sebastian & Sachs, Dominik, 2015. "Designing efficient college and tax policies," Working Papers 15-09, University of Mannheim, Department of Economics.
    6. Hellwig, Christian & Werquin, Nicolas, 2022. "Using Consumption Data to Derive Optimal Income and Capital Tax Rates," TSE Working Papers 22-1284, Toulouse School of Economics (TSE), revised Jul 2024.
    7. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    8. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2020. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," Econometrica, Econometric Society, vol. 88(2), pages 469-493, March.
    9. Yongsung Chang & Yena Park, 2021. "Optimal Taxation with Private Insurance [Uninsured Idiosyncratic Risk and Aggregate Saving]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2766-2798.
    10. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2016. "A Theory of Asset Prices Based on Heterogeneous Information," Cowles Foundation Discussion Papers 2051, Cowles Foundation for Research in Economics, Yale University.
    11. Albert Jan Hummel, 2021. "Monopsony power, income taxation and welfare," Tinbergen Institute Discussion Papers 21-051/VI, Tinbergen Institute.
    12. Doligalski, Paweł & Rojas, Luis E., 2023. "Optimal redistribution with a shadow economy," Theoretical Economics, Econometric Society, vol. 18(2), May.
    13. Brendon, C., 2022. "Optimal Nonlinear Savings Taxation," Janeway Institute Working Papers 2210, Faculty of Economics, University of Cambridge.
    14. Findeisen, Sebastian & Sachs, Dominik, 2017. "Redistribution and insurance with simple tax instruments," Journal of Public Economics, Elsevier, vol. 146(C), pages 58-78.
    15. Karl Schulz, 2021. "Redistribution of Return Inequality," CESifo Working Paper Series 8996, CESifo.
    16. Brendon, C., 2022. "Optimal Nonlinear Savings Taxation," Cambridge Working Papers in Economics 2221, Faculty of Economics, University of Cambridge.
    17. Albert Jan Hummel, 2021. "Monopsony Power, Income Taxation and Welfare," CESifo Working Paper Series 9128, CESifo.
    18. Hellwig, Christian & Werquin, Nicolas, 2022. "A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage," CEPR Discussion Papers 16863, C.E.P.R. Discussion Papers.
    19. Hummel, Albert Jan & Ziesemer, Vinzenz, 2023. "Food subsidies in general equilibrium," Journal of Public Economics, Elsevier, vol. 222(C).
    20. Axelle Ferriere & Philipp Grübener & Gaston Navarro & Oliko Vardishvili, 2023. "On the Optimal Design of Transfers and Income Tax Progressivity," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 276-333.

    More about this item

    Keywords

    female labor supply; childcare; family policies; fiscal externalities; dynamic discrete choice; redistribution;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_10793. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.