Experimental Evidence of a Private Childcare Voucher

[preliminary – do not quote without permission] Abstract: This paper uses a large-scale experiment to estimate the effect of vouchers for childcare on the mothers' labour force participation and the use of childcare in Finland. The private childcare voucher acted as a significant boost for new childcare entrepreneurs to enter the market thus increasing the overall childcare provision in the municipalities that participated in the experiment. In a market that is already providing high-quality, low-cost public childcare, a voucher for private childcare has a significant, positive effect for the use of formal childcare, especially in areas that suffer from excess demand for childcare services. The use of formal childcare increased by between 3 and 6 percentage points in the whole country while in areas of excess demand the increase was approximately 14 percentage points. Labour force participation of mothers of older preschool age children increased by over 5 percentage points in areas of excess demand. The impact for countries with low availability of formal childcare services, such as the UK or Germany, can be expected to have an even larger impact on labour force participation of mothers of young children as a result of a similar subsidy. None of the estimates are found to be significant for the mothers of 0-2 year old children. Furthermore, propensity score matching is found to perform considerable better than difference-indifferences estimation. † I would like to thank the Yrjö Jahnsson Foundation for financial assistance during my doctoral studies and especially in purchasing the data used in this analysis. I would also like to thank Arnaud Chevalier and Ian Walker and the participants at the 6 Dublin for comments on earlier drafts of the paper as well as Steve Pischke, Alan Manning, Seija Ilmakunnas and Roope Uusitalo for discussions about the initial research and the data. Furthermore I would like to thank Statistics Finland for providing the data used in the analysis.