Redistributive Effects of Mixed Child Care Regimes - Evidence from German Household-Level Data

Most European countries' provision of child care may be described by a system of coexistence of private and public child care facilities. Whenever public and private alternatives coexist, there is redistribution of income within the population for two rea sons. First, the taxes to be paid depend on the household income. Second, high-income households are more likely to opt out of the public system and demand private child care (e.g., for reasons of flexibility or quality). The goal of our analysis is to sh ed light on the redistributive effects of mixed child care regimes using German panel data on child care for the years 1991 to 2008. First results show, that demand for a certain type of child care is mostly driven by parents' income and the local price f or public care. Other factors such as informal care availability only play a minor role. The economic literature discusses two possible effects of mixed child care regimes on redistribution: Either parents above a certain income threshold opt out for a pr ivate alternative or an "ends against the middle result" (EATM) occurs. In the latter case, the poor and the rich prefer low public provision, while the middle class prefers high public provision. If the price effect (via higher taxes) dominates the incom e effect (demand for public care increases in income), the EATM-equilibrium arises. The intuition is that low income parents prefer a low level of governmental provision because of their limited financial endowment; very rich households are likely to opt out for private care and thus also prefer low public provision. The middle income parents prefer high public spending as they are effectively subsidized by the rich. The form of the equilibrium determines the redistributive effects of governmental child c are provision (from poor to rich or vice versa). Besides the direction of the redistribution we also want to estimate to which extend parents of a certain income-group benefit/lose in a mixed child care regime.