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Essays in Family Economics Essays in Family Economics Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universität München 2014 vorgelegt von Lisa Stadler Referent: Prof. Dr. Robert Fenge Korreferent: Prof. Dr. Andreas Haufler Promotionsabschlussberatung: 05. November 2014 Datum der mündlichen Prüfung: 24. Oktober 2014 Namen der Berichterstatter: Robert Fenge, Andreas Haufler, Christian Holzner Acknowledgments Writing this thesis has been an inspiring and challenging time. Its completion would not have been possible without the support of numerous people to whom I would like to express my deep appreciation at this point. My first and foremost gratitude goes to my thesis supervisor Robert Fenge. I highly appreciated his academic advice and encouragement during the preparation of this thesis. He was very encouraging, inspiring, and helpful in choosing my topic and getting started at the beginning of my doctorate. Later, he gave me the freedom to pursue my research interests and was always willing to discuss new ideas and thoughts. I am also very grateful to Andreas Haufler for kindly agreeing to become my second advisor and to Christian Holzner for joining my dissertation committee as third examiner. My research benefited a lot from their constructive hints, comments, and proposals during the Public Finance and Economic Policy Seminar. During the course of writing this dissertation, I highly appreciated the inspiring discussions with my colleagues and the participants of the Public Finance and Economic Policy Seminar. In particular, I would like to thank Nadjeschda Arnold, Florian Buck, Wolfgang Habla, Dominika Langenmayr, Mohammed Mardan, Ulf Maier, Kerstin Röder, Marco Sahm, and Daniel Singh. Special thanks also go to my friends and colleagues Yu- Ri Chung, Tanja Greiner, Susanne Hoffmann, Michael Irlacher, Tatjana Nabokin, Ines Pelger, Heike Schenkelberg, Till Stowasser, and Elisabeth Wieland for their encouragement, academic advice, and friendship. Being a Ph.D. student at the Department of Economics at the University of Munich was a great experience. I am highly indebted to the department for the inspiring research environment as well as financial and organizational support, most notably to Silke Englmaier. My deepest gratitude goes to my family and friends from near and far. Thank you for your constant encouragement, unconditional support, and love! Contents 1 Introduction ............................................................................................................... 1 2 Three Family Policies to Reconcile Fertility and Labor Supply ........................ 12 2.1 Introduction ........................................................................................................... 12 2.2 The model .............................................................................................................. 16 2.3 Comparative statics: The effects of changes in the family policy system ............. 19 2.3.1 Absolute effects ............................................................................................. 19 2.3.2 Differential effects ......................................................................................... 25 2.4 Welfare analysis..................................................................................................... 33 2.5 Conclusion ............................................................................................................. 41 Appendix ....................................................................................................................... 44 3 Public Provision versus Subsidization of Private External Child Care ............. 50 3.1 Introduction ........................................................................................................... 50 3.2 The baseline model ................................................................................................ 53 3.3 Child care regimes ................................................................................................. 58 3.3.1 Publicly provided child care .......................................................................... 59 3.3.2 Subsidy on external child care ....................................................................... 62 i 3.4 Comparison of preferences over child care regimes .............................................. 65 3.4.1 Preferences over child care regimes .............................................................. 65 3.4.2 Numerical simulation .................................................................................... 69 3.5 Conclusion ............................................................................................................. 72 Appendix ....................................................................................................................... 74 4 The Role of Government in Child Care Provision .............................................. 78 4.1 Introduction ........................................................................................................... 78 4.2 The model .............................................................................................................. 82 4.3 Comparative statics: The effects of changes in the family policy system ............. 88 4.3.1 Interior solution of parental and external child care ...................................... 88 4.3.2 Corner solutions of parental and external child care ..................................... 95 4.4 Welfare analysis................................................................................................... 100 4.5 Conclusion ........................................................................................................... 105 Appendix ..................................................................................................................... 108 Bibliography ................................................................................................................... 112 ii List of Figures Figure 1.1: Cross-country relationship between female employment rates and total fertility rates (2010) .......................................................................................... 5 Figure 1.2: Public expenditure on child care (2009, in % of GDP) .................................... 7 Figure 1.3: Enrolment rates in child care among children under age three (2010, in %) .... 8 Figure 1.4: Proportion of children under age three enrolled in formal child care in Germany (2011) .............................................................................................. 10 Figure 1.5: Proportion of nursery teachers with a professional education or formal education (160 hours) in Germany (2011) ................................................... 10 Figure 3.1: The relationship between fertility and the secondary earner’s wage rate ....... 56 Figure 3.2: The relationship between the demand for parental and external child care and the secondary earner’s wage rate .................................................................... 58 Figure 3.3: Indirect utility of a typical household dependent on the income tax .............. 67 Figure 3.4: Indirect utility of a typical household dependent on the income tax .............. 68 Figure 3.5: Preferences for publicly provided versus purely private child care ................ 70 Figure 3.6: Preferences for subsidized versus purely private child care ........................... 71 Figure 3.7: Preferences for subsidized versus publicly provided child care ..................... 71 Figure 3.8: Preferences for publicly provided versus purely private child care ................ 75 Figure 3.9: Preferences for subsidized versus purely private child care ........................... 75 Figure 3.10: Preferences for subsidized versus publicly provided child care ................... 75 iii Figure 3.11: Preferences for publicly provided versus purely private child care .............. 76 Figure 3.12: Preferences for subsidized versus purely private child care ......................... 76 Figure 3.13: Preferences for subsidized versus publicly provided child care ................... 77 Figure 4.1: The relationship between the demand for parental and privately provided external child care and the secondary earner’s wage rate (for 0) .......... 87 Figure 4.2: The relationship between fertility and the secondary earner’s wage rate ....... 88 iv Chapter 1 1 Introduction Over the past few decades, fertility has declined sharply in most member countries of the Organization for Economic Co-operation and Development (OECD). Today, almost no OECD country has a total fertility rate (TFR) 1 above the population replacement rate of 2.1 children per woman. 2 Important factors associated with this general decline in developed countries’ TFRs are not only the improvement of contraceptive technology and a decline in infant mortality (see e.g Goldwin and Katz, 2000, 2002), but also increased income and, hence, higher opportunity costs of children (see e.g. Becker, 1981), the rise in the labor force participation of women (see e.g. Ahn and Mira, 2002 and Feyrer et al., 2008) as well as the expansion of social security systems and the redundancy of children as providers in old age (see e.g. Sinn, 2004). There are various economic consequences of low fertility, ranging from a decline in the working-age share of the population to a slowdown of economic growth as well as financial difficulties in health care and pensions
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