Our paper analyzes the impact of the introduction of a home care allowance for children between 13 and 36 months of age and explicitly takes the expansion of publicly funded day care into account. We use the German Socio-Economic Panel (SOEP) to estimate a structural model in which parents decide simultaneously about labor supply, usage of external day care and their time spent for child care within the family. The model also allows for possible rationing of the parents with respect to day care places. Simulations using the estimated model parameters show that a home care allowance reduces labor supply and the usage of external day care. Solely increasing supply of publicly funded day care in contrast yields opposite results. When we consider the introduction of a home care allowance and the expansion of publicly funded day care combined, we observe in total a reduction in labor supply and day care usage. A home care allowance in fact increases the household income especially for poorly educated families, but at the same time discourages these parents to use external day care which can be important for early education.

Keywords

Behavioral microsimulation, day care, family policy, Germany