Maternal Employment, Fertility, Child Care Use, and Cognitive Outcomes of Children: Evidence from a Norwegian Reform

In 1998, Norway implemented the cash-for-care reform ("kontant stoette"), which provided cash to families with young children who did not use government-subsidized child care facilities. The reform resulted in a sizable exogenous change in the relative price of child care facilities, which interacted with pre-existing regional variations in the child care system. Using administrative data from 1995 to 2010, we examine the effects of the reform by estimating a dynamic structural model of maternal employment, fertility, and child care use for multiple children. We investigate the effects of such behavioral changes on the long-run cognitive outcomes of children, by estimating a cognitive ability production function with data on national test scores. Numerical results from several counterfactual exercises, including budget analysis, are presented. In particular, we compare the effects of existing and alternative child care polices with the effects of the maternity leave system.