Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 09/12: CARE OR CASH? THE EFFECT OF CHILD CARE SUBSIDIES ON STUDENT PERFORMANCE.

Sandra E. Black (), Paul J. Devereux (), Katrine V. Løken () and Kjell G. Salvanes ()
Additional contact information
Sandra E. Black: University of Texas at Austin, Postal: Department of Economics, 1 University Station C3100, University of Texas at Austin, Austin, TX 78712, USA
Paul J. Devereux: University College Dublin, Postal: School of Economics, Newman Building, Belfield, Dublin, Ireland
Katrine V. Løken: University of Bergen, Postal: Department of Economics, Fosswinckelsgt. 14, 5007 Bergen, Norway
Kjell G. Salvanes: Norwegian School of Economics, Postal: NHH, Department of Economics , Helleveien 30, , NO-5045 Bergen, , Norway

Abstract: Many countries have implemented childcare subsidies in an effort to help families; in the United States, the government created the Child Care and Development Fund in 1996, which provides public funds for childcare assistance to low-income families. Despite the importance of the issue, little is known about the effect of childcare subsidies on parent and child outcomes. Research in this area has been limited because of the difficulty identifying the causal effect of childcare price on later outcomes; for example, higher childcare prices may be associated with better childcare or wealthier parents, in which case one cannot isolate the effect of price alone on later child outcomes. This paper uses recent data and a novel source of identifying variation--sharp discontinuities in the price of childcare by income in Norway--to identify the effect of childcare subsidies on parental behavior and the later academic achievement of children. There are a number of papers that have examined the effect of childcare subsidies on female labor force participation, with the findings ranging from no effect to significant negative effects (See Blau, 2000, for a summary). More recently, work by Herbst and Tekin (2010b) has examined the effect of childcare subsidies in the United States on children’s academic performance.1 They use a unique identification strategy, applying distance to the nearest social service agency that administers the subsidy application process as an instrument for subsidy receipt. They find small negative effects of subsidy receipt the year before kindergarten on kindergarten performance, although these negative effects have generally disappeared by third grade.2 Our work complements this

Keywords: Education; income subsidy; child care

JEL-codes: J13

54 pages, May 30, 2012

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