DP279 | Daycare Subsidies and Labor Supply in Sweden

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The provision of subsidized child care may encourage women to participate in the paid labor force. This paper analyzes the effects of the price and availability of subsidized child care on labor force participation, using data from a Swedish household survey for 1984 in combination with data on public day care fees and spaces per child by community. We argue that the subsidy rate and availability of spaces determined by the political leaders of the community is to a large extent exogenous to the household. The joint out-of-home child care and labor supply decision is analyzed by logit-choice models. We find that the provision of high quality public day care in Sweden encourages the labor market activity of women with preschoolers, even when a spouse's income is high, and that when spaces are not rationed a lower price encourages use. This is consistent with the predictions of our theoretical model.