Direct or indirect subsidies? Optimal childcare subsidy and application to China

This paper examines the optimal design of childcare subsidies and how subsidies are implemented. We combine the optimal subsidy model with the situation in China and construct the optimal childcare subsidy model using families as units. We discuss the selection patterns of direct and indirect subsidies and prove the applicable ranges and selection thresholds for different subsidy types. Based on the CFPS database in China, we simulate the amount of childcare subsidies for families with different levels of market productivity and calculate the optimal amount of subsidies for them. The results show that direct subsidies should be provided to families whose wages are lower than the market price of childcare. Indirect subsidies should be provided to families whose wages are above the market price for childcare. Finally, the optimal child-rearing subsidy curve is derived, and the easily identifiable macro optimal subsidy curve is designed for implementation.

Automated summary

This paper investigates the optimal design and implementation of childcare subsidies in China. Using a combination of the optimal subsidy model and the Chinese context, the study constructs an optimal childcare subsidy model based on families as units. By utilizing the CFPS database, the paper simulates the amount of childcare subsidies for different levels of market productivity and calculates the optimal subsidy amount. The results suggest that direct subsidies should be provided to families with lower wages than the market price of childcare, while indirect subsidies should be provided to families with higher wages. Finally, the study derives the optimal childcare subsidy curve and designs a macro optimal subsidy curve that can be easily implemented.