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Child-Related Transfers, Household Labor Supply and Welfare

Author

Listed:
  • Guner, Nezih
  • Ventura, Gustavo
  • Kaygusuz, Remzi
Abstract
What are the macroeconomic and welfare effects of expanding transfers to households with children in the United States? How do childcare subsidies compare to alternative policies? We answer these questions in a life-cycle equilibrium model with household labor-supply decisions, skill losses of females associated to non participation, and heterogeneity in terms of fertility, childcare expenditures and access to informal care. We consider the expansion of transfers that are contingent on market work -- childcare subsidies and Child and Dependent Care Tax Credits (CDCTC) -- versus those that are not -- Child Tax Credits (CTC). We find that expansions of transfers of the first group have substantial positive effects on female labor supply, that are largest at the bottom of the skill distribution. Universal childcare subsidies at a 75% rate lead to long-run increases in the participation of married females of 8.8%, while an equivalent expansion of the CTC program leads to the opposite -- a reduction of about 2.4%.We find that welfare gains of newborn households are substantial and up to 2.3% under the CDCTC expansion. The expansion of none of the existing programs, however, receives majority support at the time of its implementation. Our findings show substantial heterogeneity in welfare effects, with a small fraction of households --young and poorer households with children -- who gain significantly while many others lose.

Suggested Citation

  • Guner, Nezih & Ventura, Gustavo & Kaygusuz, Remzi, 2017. "Child-Related Transfers, Household Labor Supply and Welfare," CEPR Discussion Papers 11779, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11779
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    References listed on IDEAS

    as
    1. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    2. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
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    More about this item

    Keywords

    Household labor supply; Child-related transfers; Childcare;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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