Loris Rubini, University of New Hampshire

"Resource Misallocation from Childcare Policies"

Abstract

Childcare costs limit the capacity of low-income families to work. Governments have designed various policies to reduce these costs, although some may have unforeseen negative general equilibrium consequences. This paper focuses on one law in Chile that forces firms with more than 19 female workers to pay for childcare. We evaluate its effects through a calibrated model that features firm and household heterogeneity. Removing the policy would increase GDP by 3.4%. The distributional impacts are sizeable, with losses of 18% among families losing coverage to gains of up to 20% for other families in consumption equivalent units. We evaluate two alternative policies: one currently being considered by the Chilean government that finances childcare through a labor tax, and another where all firms must pay for childcare irrespective of size. Both policies would provide gains for all households, with larger improvements in the former (GDP increases by 3.5%) and welfare gains for the poorest of up to 60%.

Contact person: Martin Gonzalez-Eiras