Child-care quality and fee structure: Effects on labor supply and leisure composition

Abstract

This paper studies the effects of public child-care subsidies on parental time allocation. We develop a model where parents are allowed to utilize subsidized care during both working and leisure hours. The model distinguishes between subsidies to child-care quality and to fees. Three types of fees are considered:flat, based on time spent in care, and based on parental income. We show that parental time allocation depends on whether quality or fees are subsidized, and also that fee subsidies have different effects depending on the fee structure. We further show that even if a subsidy increases the use of public care, the effect on labor supply may be unclear due to the possibility of using child care also when not working.