Who Pays for Childcare? Social Norms, Household Spending, and the Child and Dependent Care Credit

• In Event: Childcare Subsidies, Labor Supply, and Household Decisions

Abstract

We propose a new model to explain this behavior based on the interaction between comparative advantage and social norms. Married men and women must choose how to divide their time between childcare and market work, with any unmet childcare needs being purchased from the market. The couple then Nash bargains over household utility. The social norm regime dictates each partners’ threat point. Under equitable social norms, men and women must provide an equal share of childcare when bargaining breaks down. Alternatively, when social norms dictate that childcare is women’s responsibility, she must provide all of the childcare when bargaining breaks down.

We use our model to develop predictions which allow us to test for the prevailing social norms in the face of changes in the market price for childcare. When social norms dictate women should be the primary childcare providers, women are harmed more than their husbands by increases in the market price of childcare. Surprisingly, under equitable social norms, an increase in the price of childcare harms men. This is driven by comparative advantage. When women are the sole providers of childcare, men are unaffected (when bargaining breaks down) by the market childcare price. However, under the equitable regime, women’s comparative advantage allows them to better avoid an increase in childcare prices by providing more themselves. Men in contrast absorb the full price increase.

To test between these different social norm regimes, we exploit the expansion of the Child and Dependent Care Credit (CDCC), a tax credit for families who purchase child care from the market. Using spending data from the Consumer Expenditure Survey (CEX), our results broadly confirm the existence of gender biased social norms on childcare. Households who were exposed to the CDCC credit saw an increase in spending on women’s clothing relative to men’s. Further, using a pseudo-panel we construct from the CEX, we find a direct relationship between the size of the CDCC tax credit received and the relative household spending on women’s clothing. These results are broadly similar whether we use the actual change in the size of the credit, or an instrumental variable specification which uses the maximum eligible credit as an IV.

Author

• Danyang Zhang, New Mexico State University
  Presenting Author