Effectiveness of Child Care Policies in an Economy with Child Care Services

This paper describes how fertility is determined in a model that assumes the existence of child-care services. When child-care services exist, two multiple states result: a state that brings about low fertility with low female labor partici-pation, and a state that brings about high fertility with high female labor participation. This result is consistent with the positive correlation that is found between the total fertility rate and female labor participation in developed countries, as described by Ahn and Mira (2002) [1] and others. Moreover, this paper presents analyses of the effects of child-care policies, for example, a child allowance and a subsidy for child-care services policies. These policies instantaneously raise fertility. However, in a dynamic general equilibrium model, these policies might pull down fertility because capital accumulation decreases in the long run. If income growth continues in the long run, then the child allowance can always pull up fertility. However, if the income level converges to constant level in the long run, then the child allowance might pull down fertility. This result shows that the effect of the child allowance depends on whether income growth ceases or continues in the long run.