The Effect of an Alternative Childcare Subsidy on Labour Supply: A Policy Simulation

Based on labour supply parameter estimates and childcare demand parameters for the Australian population in 2002, this paper illustrates how an extended childcare subsidy proposed by the Taskforce on Care Costs in October 2006 can be evaluated using a microsimulation model. First, the cost to the government is predicted assuming unchanged labour supply behaviour. Then the labour supply effects of the TOCC proposal are predicted for single parents and couple families separately, including a revised cost/benefit analysis which takes the labour supply responses into account.