Child Care Subsidies and Child Well-Being: An Instrumental Variables Approach

Chris Herbst1, Erdal Tekin 1
1Georgia State University, IZA, and NBER, USA, 2Arizona State University, USA

In this paper, we provide a systematic assessment of the association between subsidy receipt and a wide range of child outcomes. To deal with the endogeneity of subsidy receipt, we use a unique instrumental variables method that exploits variation in the distance that low-income families must travel from home in order to reach the nearest welfare or child care agency. In particular, we calculate the distance between survey respondents’ census tract of residence and the location of the relevant public agency at which families can apply for child care subsidies. Doing this involved the laborious and time intensive task of creating a data base of the locations of social welfare agencies for every county in every state in the United States. We assume that the distance between respondents’ addresses and these agencies is inversely related to the likelihood of receiving a subsidy. Parents who live farther away from these agencies face higher transportation and psychic costs than those who live closer. Many of these costs are compounded by states’ mandatory recertification process, in which parents must undergo eligibility re-screening every six or 12 months. Drawing on rich data from the Early Childhood Longitudinal Study, we find negative effects of child care subsidy receipt on child development. In particular, our results suggest that subsidy receipt in the year before kindergarten lowers reading and math test scores and results in greater behavior problems at kindergarten entry.

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