The Effectiveness of Fiscal Stimuli for Working Parents

Abstract

The Effectiveness of Fiscal Stimuli for Working Parents *To promote the labor participation of parents with young children, governments employ a number of fiscal instruments. Prominent examples are childcare subsidies and in-work benefits. However, which policy works best for employment is largely unknown. We study the effectiveness of different fiscal stimuli in an empirical model of household labor supply and childcare use. We use a large and rich administrative data set for the Netherlands. Largescale reforms in childcare subsidies and in-work benefits in the data period facilitate the identification of the structural parameters. We find that an in-work benefit for secondary earners that increases with income is the most effective way to stimulate total hours worked. Childcare subsidies are less effective, as substitution of other types of care for formal care drives up public expenditures. In-work benefits that target both primary and secondary earners are much less effective, because primary earners are rather unresponsive to financial incentives. JEL Classification:C25, C52, H31, J22

Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments

“…Unfortunately, informal childcare is not included in our administrative data set. However,De Boer et al (2015) estimate preferences using the overlap in working hours of parents minus the hours of formal childcare as a proxy for informal childcare. The resulting labour supply and formal childcare price elasticities are very similar to the model without the proxy for informal childcare.18 We remove people on unemployment benefits from the structural model, implicitly assuming that they are constrained in their labour supply choice.…”

Growing together: making Lithuania's convergence process more inclusive

“…First, an increase in the level of the basic benefit, as discussed above, could be accompanied by a flatter scale for the family (Avram et al, 2015). Second, in-work benefits could be designed to favour the second earner who is generally more sensitive to financial incentives to the extent that childcare facilities are provided (Immervoll and Pearson, 2009;OECD, 2005;de Boer et al 2015). Average effective tax rates measure the extent to which taxes and benefits reduce the financial gain of moving into work.…”

Towards more gender equality in Austria

“…The Netherlands Bureau of Economic Policy Analysis produced a pioneering analysis of the efficiency of alternative support schemes for working parents (de Boer et al, 2014). The researchers suggest that their "findings are relevant for the effectiveness of these policies in other developed OECD countries".…”