Abstract
The effects of a recent Swedish child-care fee reform are compared with those of an alternative reform, increased child benefits. The fee reform implied considerably decreased fees and was intended to increase both labor supply among parents and their economic well-being. We estimate labor supply effects using a discrete choice labor supply model, and simulate behavioral responses to the changes. We find positive, but small, effects on labor supply from reduced fees, while increased child benefits would make single mothers decrease their labor supply. On the other hand, increased child benefits would make income distribution more equal. We make a social welfare comparison and conclude that for plausible values of inequality aversion, the alternative reform would have been preferred to the implemented fee reform.
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Valuable comments from Stefan Schaefer, from seminar participants at the universities of Göteborg and Uppsala and at the 2005 ESPE and 2006 IIPF conferences, and from three anonymous referees are gratefully acknowledged. This research was financially supported by the Swedish Research Council, the Malmsten Foundation, and the Jan Wallander Foundation.
The views expressed in the paper do not necessarily reflect those of the Swedish Ministry of Finance.
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Brink, A., Nordblom, K. & Wahlberg, R. Maximum fee versus child benefit: a welfare analysis of Swedish child-care fee reform. Int Tax Public Finance 14, 457–480 (2007). https://doi.org/10.1007/s10797-007-9030-3
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DOI: https://doi.org/10.1007/s10797-007-9030-3