Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/301322 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11196
Publisher: 
CESifo GmbH, Munich
Abstract: 
We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket” to compare the MECR of an income-contingent childcare subsidy program and of the income-contingent tax and transfer schedule. We set up a dynamic structural model of heterogeneous households choosing their childcare demand and maternal labor supply. Allowing for the availability of informal childcare and for consumption of leisure, we estimate this model within the German context. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the tax and transfer system. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. We show that, under most plausible assumptions on the long-term returns to childcare attendance for children growing up in households of different incomes, progressive childcare subsidies are the more efficient redistribution tool.
Subjects: 
female labor supply
childcare
family policies
fiscal externalities
dynamic discrete choice
redistribution
JEL: 
H23
H31
J13
J22
J24
Document Type: 
Working Paper
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