Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives

69 Pages Posted: 27 Jan 2006

See all articles by Herwig Immervoll

Herwig Immervoll

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; World Bank, Europe and Central Asia; IZA Institute of Labor Economics; ISER Institute for Social and Economic Research; University of Canberra - National Centre for Social and Economic Modelling (NATSEM); United Nations - European Centre for Social Welfare Policy and Research

David Barber

affiliation not provided to SSRN

Date Written: January 2006

Abstract

Childcare policies play a crucial role in helping parents reconcile care and employment related tasks. This paper quantifies the net cost of purchasing full-time centre-based childcare in OECD countries taking into account a wide range of influences on household budgets, including fees charged by childcare providers as well as childcare-related tax concessions and cash benefits available to parents. Building on these calculations, family resources are evaluated for different employment situations in order to assess the financial trade-offs between work and staying at home. Results are disaggregated to identify the policy features that present barriers to work for parents whose employment decisions are known to be particularly responsive to financial work incentives: lone parents and second earners with young children requiring care. The results indicate that the cost of purchasing childcare services should be analysed in conjunction with other social and fiscal policies that affect family incomes. While childcare fees can be very high, high prices may not impede employment if tax-benefit systems incorporate well-balanced provisions that help parents pay for these services. Conversely, even highly subsidised childcare markets can leave parents with little financial gain from employment if high tax burdens or benefit claw-back rates give rise to adverse work incentives.

Keywords: childcare costs, work incentives, labour supply, tax-benefit systems

JEL Classification: D13, H31, J13, J18, J22

Suggested Citation

Immervoll, Herwig and Immervoll, Herwig and Barber, David, Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives (January 2006). Available at SSRN: https://ssrn.com/abstract=878665 or http://dx.doi.org/10.2139/ssrn.878665

Herwig Immervoll (Contact Author)

World Bank, Europe and Central Asia ( email )

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University of Canberra - National Centre for Social and Economic Modelling (NATSEM) ( email )

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AUSTRALIA

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United Nations - European Centre for Social Welfare Policy and Research ( email )

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David Barber

affiliation not provided to SSRN ( email )

No Address Available

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