An Evaluation of A Pronatal Subsidy Program in Korea: A Quasi-Experimental Approach

This paper evaluates the overall effects of a pronatal subsidy program, the Basic Subsidy Program (BSP), in Korea. As the Total Fertility Rate(TFR) declines as low as 1.08 in 2005, several pronatal programs are urgently enlarged and newly introduced. One such program is the BSP for families with infants cared for in private day care centers. The subsidies mainly aim to improve the quality and the accessibility of child care, and encourage mothers' labor supply by providing lump-sum subsidy per child to the private day care centers. I show overall effects of this subsidy by taking advantage of a quasi-experimental environment where only the families with the infants(0-2 years) compared to the toddlers(3-5 years) that use private care centers rather than other types of facilities are subsidized. Findings show that the subsidies have some positive effects on quality characteristics at the subsidized facilities. However, the increase in per child input is far less than per child subsidy, which implies low effectiveness of the program. In addition, the subsidy is found to have little impact on households with young children.