Advanced seminar in Economics - Dominik Sachs (University of St. Gallen)

Quantifying Okun’s Leaky Bucket: The Case of Progressive Childcare Subsidies

Wednesday 2 October 2024 - 11h00 to 12h30 - General public

Extranef 109 or Online

We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket” to compare the MECR of an income- contingent childcare subsidy program and of the income-contingent tax and transfer schedule. We set up a dynamic structural model of heterogeneous households choosing their childcare demand and maternal labor supply. Allowing for the availability of informal childcare and for consumption of leisure, we estimate this model within the German context. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the tax and transfer system. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. We show that, under most plausible assumptions on the long-term returns to childcare attendance for children growing up in households of different incomes, progressive childcare subsidies are the more efficient redistribution tool.

Published from 19 August 2024 to 3 October 2024
Marius Brülhart
Visibility:
archived