Two Steps Forward—One Step Back? Evaluating Contradicting Child Care Policies in Germany

Abstract

We apply a structural model of mothers’ labor supply and child care choices to evaluate the effects of two child care reforms in Germany that were introduced simultaneously. A legal claim to subsidized child care became effective for children aged 1 year or older. Moreover, a new child care allowance (‘Betreuungsgeld’) came into effect. It is granted to families who do not use publicly subsidized child care. Both reforms target children of the same age group and are unconditional on parents’ income or employment status, yet affect mothers’ incentives for labor supply and child care choices differently. Our model facilitates estimating the joint reform impact as well as disentangling the individual effects of both policies. A new comprehensive data set with information on labor supply, the use of and potential access restrictions to various child care arrangements is used. We find the overall effect of both reforms to be small but positive as far as mother’s labor supply and the use of formal care is concerned. The legal claim’s positive impact on mothers’ labor supply and the use of formal child care is largely offset by the negative effect on both outcomes resulting from the introduction of the child care allowance. (JEL codes: J22, J18, and H31)

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