Child-Related Transfers, Household Labour Supply, and Welfare

Abstract

What are the macroeconomic effects of transfers to households with children? How do alternative policies fare in welfare terms? We answer these questions in an equilibrium life-cycle model with household labour supply decisions, skill losses of females associated to non-participation, and heterogeneity in terms of fertility, childcare expenditures, and access to informal care. Calibrating our model to the U.S. economy, we first provide a roadmap for policy evaluation by contrasting transfers that are conditional on market work (childcare subsidies and childcare credits) with those that are not (child credits), when both types can be means tested or universal. We then evaluate expansions of current arrangements for the U.S. and find that expansions of conditional transfers have substantial positive effects on female labour supply, that are largest at the bottom of the skill distribution. Expanding childcare credits leads to long-run increases in the participation of married females of 10.6%, while an equivalent expansion of child credits leads to the opposite ($-$2.4%). Expanding existing programs generates substantial welfare gains for newborn households, which are largest for less-skilled households. Expanding childcare credits leads to the largest welfare gains for newborns and achieves majority support.

The Macroeconomic Effects of Universal Basic Income Programs

“…I follow the approach used in Attanasio et al (2008) and Guner et al (2020Guner et al ( , 2021 and assume that the human capital component evolves according to a law of motion that takes into account the increasing return on wage due to labor market experience:…”

“…In order to tackle this task, I numerically solve a dynamic general equilibrium model that is able to provide micro-founded life-cycle and budgetary implications of such a broad welfare state reform as well as a normative assessment that relies on rich dynamics and heterogeneity, taking into account the overall impact on inequality. With respect to the literature, this work is in the tradition of evaluating reforms and transfer programs in heterogeneous agents models (Berriel and Zilberman, 2012;Lopez-Daneri, 2016;Pashchenko and Porapakkarm, 2017;Hannusch, 2019;Daruich and Fernandez, 2020;Wellschmied, 2021;Ortigueira and Siassi, 2021;Guner et al, 2020Guner et al, , 2021Conesa et al, 2021;Ferreira et al, 2021;Mukbaniani, 2021) and is an addition on the quantitative macroeconomics side to a growing list of recent studies that focus on UBI policy (Jones and Marinescu, 2019;Hanna and Olken, 2018;Banerjee et al, 2019;Ghatak and Maniquet, 2019;Hoynes and Rothstein, 2019).…”

Child Care Subsidies, Quality, and Optimal Income Taxation

“…In a more recent paper, Guner et al (2017) extend the analysis by Domeij and Klein (2013) in several directions and study the macroeconomic and welfare implications of transfers to households with children, including subsidies to child care. However, as Domeij and Klein (2013), they do not consider a Mirrleesian optimal income tax setting, and even though the quantity of child care in their model is a choice variable (and not strictly related to hours of work) and agents face different (exogenous) child care costs, child care quality is not a choice variable of agents.…”

The U.S. tax-transfer system and low-income households: Savings, labor supply, and household formation

“…There is no cohabitation. Guner et al (2020) assess the effects of expansions in child care subsidies and child care tax credits (which are contingent on work) versus expansions in the Child Tax Credit (which is not contingent on work). They develop a rich, deterministic model of savings, female labor force participation, and male and female hours worked.…”