More childcare for the poor? Budgetary impacts and female labour supply responses in Italy, Austria and Hungary

Abstract

This paper examines the economic implications of achieving three different childcare targets (45%, 50%, and 55%) on children from disadvantaged families in Italy, Austria and Hungary. Using a discrete choice structural labour supply model that considers childcare options, we evaluate the impact of increasing childcare slots for children under 3 in poor households, defined as those in the bottom half of the income distribution. Reaching the revised Barcelona targets of 45% formal childcare participation for children under 3 would notably boost mothers' workforce engagement in all three countries, particularly in Austria. Moreover, the initial costs of creating additional childcare slots are nearly balanced out by the rise in income tax and social security contributions resulting from increased female labour market participation.