Child Care Benefit Causes High Windfall Gains

The planned child care benefit (Betreuungsgeld) by the German government for mothers, who care for their infants at home, causes windfall gains. This is the finding of a current study conducted by the Centre for European Economic Research (ZEW) in Mannheim. The study was conducted on behalf of the Federal Ministry of Finance and analysed the costs of the child care benefit and its effects on the parents’ income situation and labour supply.

The German government has to offer a child care placement for every third child until 2013. To compensate parents not utilizing child care facilities, the German government is currently discussing to introduce a child care benefit. Parents caring for their one to three-year-old child completely at home are to receive EUR 150 every month.

The study indicates that most mothers behave the same with or without the child care benefit. Mothers in Germany tend to care for their infants at home. Even after the planed extension of child care facilities, only a relatively small number of mothers would take up work. As the child care at home is common in Germany, windfall gains are to be expected.

The study estimates that the fiscal costs of the measure are going to be between 1.4 and 1.9 billion Euros a year. A large part of the money goes to migrant families, families with low income and parents with low educational levels. For these groups the child care benefit offers incentives to not use the new child care facilities. So the children, who could actually benefit from the child care facilities the most, will not attend child care facilities. Introducing this child care benefit could endanger the good early support in child care for children from underpriviledged families.

Child care benefit also has a negative impact for the women’s participation on the labour market. Almost every second woman working part time would quit her job to fully dedicate herself to child care. For highly qualified mothers there are no incentives to stay at home because the income loss when caring for the child at home would be considerably higher than EUR 150 a month.

Final Report of the study concerning child care benefit (in German language) (as PDF, 632 KB)

Short abstract of the study concerning child care benefit (in German language) (as PDF, 416 KB)

For further information please contact

Prof. Dr. Holger Bonin, Phone: +49/621/1235-151, E-mail: bonin@zew.de