Childcare subsidies and labour supply ¬タヤ Evidence from a large Dutch reform ¬リニ

• Using DD we study the effect of a recent childcare reform on female labour supply. • The effect on the participation rate is +3.0%, and on hours worked +6.2%. • The reform was rather costly, 90 thousand euro per additional FTE. a b s t r a c t a r t i c l e i n f o After the introduction of the Law on Childcare in 2005, childcare subsidies in the Netherlands became much more generous. Public spending on childcare increased from 1 to 3 billion euro over the period 2004–2009. Using a differences-indifferences strategy we find that, despite the substantial budgetary outlay, this reform had only a modest impact on employment. Furthermore, the rather small effects we find are likely confounded by a coincident increase in the EITC for parents with young children of 0.6 billion euro, which presumably also served to increase the labour supply of the group. The joint reform increased the maternal employment rate by 2.3 percentage points (3.0%) and maternal hours worked by 1.1 h per week (6.2%). The results further suggest that the reform slightly reduced hours worked by fathers. Many countries seek to increase the labour force participation of mothers with young children. Policymakers often point to Scandinavia, where public spending on childcare is high and participation rates of mothers are high as well. Indeed, several countries and regions have adopted part of the Scandinavian model by providing generous childcare subsidies to parents with young children (e.g. the Netherlands, Quebec) or are in the process of doing so (e.g. Germany). In this paper we study the causal effect of childcare subsidies on labour supply by means of a large, recent reform in the Netherlands. After the introduction of the Law on Childcare in 2005, childcare subsidies in the Netherlands became much more generous. The average effective parental fee for formal childcare was cut in half, and subsidies were extended to so-called guestparent care (small-scale care at the home of the 'guestparent' or at the home of the children). As a result, public spending on childcare skyrocketed, from 1 billion euro in 2004 to 3 billion euro (0.5% of GDP) in 2009. Over the same period, the government also increased targeted earned income tax credits (EITCs) for the same parents. Budgetary outlays of these EITCs increased from Amsterdam for helpful comments and suggestions. Remaining errors are our own. We are …