Does the cost of child care affect female labor market participation? An evaluation of a French reform of childcare subsidies

• We evaluate a sharp increase in childcare subsidies for some French families.
• The impact on the labor force participation of mothers is significant but small.
• The highest impact is observed for mothers of large families.
• One-child mothers work more often full-time thanks to the childcare subsidies.
• Higher subsidies probably led to a substitution of paid care for informal care.

This study evaluates the short-run impact of an increase in childcare subsidies on the use of paid childcare and the participation rate of mothers of preschool children. We use a natural experiment provided by the PAJE, a French reform in family allowances introduced in 2004. This reform temporarily creates discrepancies in the childcare subsidies received by families according to the year of birth of the children. We apply a difference-in-differences strategy on exhaustive French fiscal data that provide information on gross income as well as on the use of paid childcare services between 2005 and 2008. We use the fact that the new policy results in a significant increase in the use of paid childcare services. The effect on the labor force participation of mothers is significant but of a smaller magnitude. The highest impact is observed for mothers of large families.