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Life‐cycle and intergenerational effects of child care reforms

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  • Marc K. Chan
  • Kai Liu

Abstract

We investigate the importance of various mechanisms by which child care policies can affect life‐cycle patterns of employment and fertility among women, as well as long‐run cognitive outcomes among children. A dynamic structural model of employment, fertility, and child care use is estimated using Norwegian administrative data. The estimation exploits a large‐scale child care reform, which provided generous cash transfers to mothers who did not use formal child care facilities. We find that the reform generates sizable changes in employment and fertility decisions, especially among low‐education women. We then use the mothers' unobserved heterogeneity in the structural model as a control function to examine the effects of mothers' behavior on long‐run cognitive outcomes of children. The reform leads to lower reading scores among children, primarily as a result of mothers shifting to inferior forms of care. In counterfactual simulations, we compare the effects of an alternative child care subsidy, an expanded maternity leave program, and a tax deduction for mothers with children.

Suggested Citation

  • Marc K. Chan & Kai Liu, 2018. "Life‐cycle and intergenerational effects of child care reforms," Quantitative Economics, Econometric Society, vol. 9(2), pages 659-706, July.
    • Handle: RePEc:wly:quante:v:9:y:2018:i:2:p:659-706
    DOI: 10.3982/QE617
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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

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