Are Child Care Subsidies Cost-Effective?
Herbst, Chris M.;
||A study of the cost-effectiveness of child care subsidies along two dimensions: (1) a comparison of measures of cost-effectiveness to the alternative of an Earned Income Tax Credit (EITC); and (2) clarification of an optimal design strategy through the exploitation of the substantial cross-state policy innovation. The issue addressed is the extent to which these policies increase incentives for labor supply and human capital development, while reducing poverty and receipt of cash assistance. The study employs an empirical approach involving three broad steps: (1) modeling labor supply as a function of key budget constraint variables, including child care costs and the EITC, using a sample of single women; (2) modeling a number of indicators of educational attainment, in-school status, and job training enrollment as a function of child care costs and the EITC; and (3) conducting a welfare analysis on various components of states' CCDF comparisons in order to clarify an optimal design strategy. Data is drawn from multiple sources, primarily the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP).
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