Parental Leave, (In)Formal Childcare and Long-Term Child Outcomes

We provide a novel interpretation of the estimated treatment effects from evaluations of parental leave reforms. Accounting for the counterfactual mode of care is crucial in the analysis of child out-comes and potential mediators. We evaluate a large and generous parental leave extension in Austria exploiting a sharp birthday cutoff-based discontinuity in the eligibility for extended parental leave and geographical variation in formal childcare. We find that estimated treatment effects on long-term child outcomes differ substantially according to the availability of formal childcare and the mother's counter-factual work behavior. We show that extending parental leave has significant positive effects on children's health and human capital outcomes only if the reform induces a replacement of informal child-care with maternal care. We conclude that care provided by mothers (or formal institutions) is superior to informal care-arrangements