Does the cost of child care affect female labor market participation? An evaluation of a French reform of childcare subsidies

This study evaluates the impact of an increase in childcare subsidies on the use of paid childcare and the participation rate of mothers of preschool children. We use a natural experiment provided by the PAJE, a French reform in family allowances introduced in 2004. This reform temporarily created discrepancies in the childcare subsidies family received according to the year of birth of the children. We apply a difference-in-differences strategy on exhaustive French fiscal data that provide information on gross income as well as on the use of paid childcare services between 2005 and 2008. We find that the new policy resulted in a significant increase in the use of paid childcare services. The effect on the mothers' labour participation is significant but of a smaller magnitude. This suggests that part of the policy resulted in a substitution of informal childcare by formal ones.