Who benefits from cash-for-care? The effects of a home care subsidy on maternal employment, childcare choices, and children’s development

Abstract

We provide comprehensive evidence on Germany’s home care subsidy for one and two year-old children. In West Germany, take-up was 60% and the subsidy reduced mothers’ probability to work within three years after childbirth by 1.4 percentage points and increased exclusive parental care by 6.5 percentage points. The subsidy improved children’s development at age six, with the exception of children who do not speak German at home. In East Germany, 30% of families used the subsidy, neither affecting maternal employment nor exclusive parental care. As an income transfer, the subsidy did not benefit families with the least economic resources most.