Care or Cash? The Effect of Child Care Subsidies on Student Performance

Abstract

Given the wide use of child care subsidies across countries, it is surprising how little we know about the effect of these subsidies on children's longer-run outcomes. Using a sharp discontinuity in the price of child care in Norway, we are able to isolate the effects of child care subsidies on both parental and student outcomes. We find very small and statistically insignificant effects of child care subsidies on child care utilization and parental labor force participation. Despite this, we find significant positive effect of the subsidies on children's academic performance in junior high school, suggesting that the positive shock to disposable income provided by the subsidies may be helping to improve children's scholastic aptitude.