Private childcare subsidies

Work in progress: Private childcare subsidies and vouchers

New work in progress in private childcare subsidies. We study the introduction of early childhood education and care (ECEC) subsidies and vouchers in Finland. In the Nordic context, where universal childcare provision is common, we study two policy expansions between 1997 and 2017. First, private child care allowance was introduced in 1997, spreading private early childhood education services. Second, childcare vouchers became more common in the 2010s and 2020s and eventually replaced a portion of private child care allowance use.

Publications: Articles

New article Subsidizing private childcare in a universal regime with Eva Österbacka. Abstract:

• All families in Finland have the freedom to choose between subsidized home care, universal public childcare, and private childcare. We study the impact of the introduction of private childcare subsidies in Finland. Private childcare subsidies have causal effects on take-up but no impact on home care or employment among women with small children. Instead, private services seem to crowd out public childcare. Private services have a socioeconomic gradient by mother’s education that steepens when the subsidy increases. Families’ preferences between home care, public childcare, and private childcare do not explain the result.

Working papers and reports

New working paper on private day care allowance is available (in Finnish) here¹. Summary of main results in English:

• This study examines private day care allowance from 1997 to 2017. The research sample includes families with children aged 1–5 in private day care, public day care, and home care in Finland.

• Private day care allowance was introduced in 1997. With private day care allowance, families can purchase early childhood education services from private providers. The municipality can pay families additional municipal supplements in addition to the statutory private day care allowance. During the 2000s, the number of municipalities offering municipal supplements increased, partly accelerating the spread of private early childhood education services. Since 2009, however, municipalities have been able to offer families vouchers to purchase private early childhood education services.

• The importance of the means-tested care supplement aimed at low-income families has decreased, while the importance of municipal supplements has increased. In 1997–1998, 30 percent of the families receiving support received a care supplement; in 2000, 24 percent of families received a care supplement; from 2010 onwards, less than 1 out of 10 families received a care supplement. On the other hand, at the beginning of the 2000s, about 60 families receiving support for private care received the municipal supplement. In 2017, 88 percent of families received municipal supplements.

• Based on the results, most families that use private day care allowance have a high income. However, the socioeconomic differences in the use of private care have remained the same in the past 20 years.

• Results also show that families buy more expensive private early childhood education services in the late 2010s than in the early 2000s. In 2007, the average price of private day care was 642 euros per month (in 2017 prices). The average price was 860 euros per month per child in 2017. A few factors can explain the increase in average prices:

1. High-income families buy more expensive services than low-income families.
2. Children enter early education earlier in the 2010s and 2020s than at the beginning of the 21st century.
3. Private services are concentrated in urban areas, where wages and rents are higher than in the rest of the country.