Childcare subsidies and labour supply — Evidence from a large Dutch reform

• Using DD we study the effect of a recent childcare reform on female labour supply.
• The effect on the participation rate is + 3.0%, and on hours worked + 6.2%.
• The reform was rather costly, 90 thousand euro per additional FTE.

After the introduction of the Law on Childcare in 2005, childcare subsidies in the Netherlands became much more generous. Public spending on childcare increased from 1 to 3 billion euro over the period 2004–2009. Using a differences-in-differences strategy we find that, despite the substantial budgetary outlay, this reform had only a modest impact on employment. Furthermore, the rather small effects we find are likely confounded by a coincident increase in the EITC for parents with young children of 0.6 billion euro, which presumably also served to increase the labour supply of the group. The joint reform increased the maternal employment rate by 2.3 percentage points (3.0%) and maternal hours worked by 1.1 h per week (6.2%). The results further suggest that the reform slightly reduced hours worked by fathers.