Subsidies To Child Care: Public Policy and Optimality

Abstract

This article examines the efficiency of subsidies for extra-family child care. It is shown that if the government is attempting to maximize the household Abstract utility function revealed by the individual family, deductibility of child care expenses will constitute the maximum efficient subsidy. Concern for equity among families will also justify deductibility. Concern for the specific well- being of children can justify higher subsidies, but these should not be directed only through day care centers, and should be available to children whether or not their parents work and use day care. Finally, the effert of subsidies on fertility is shown theoretically to be ambiguous.