The Optimal Level of Childcare Subsidies: Is the Childcare Allowance Superfluous?

The German childcare allowance has proven to be a dubious instrument of family promotion. Before it was introduced, a reduction in the promotion of external childcare should have been examined first. Reforms relating to childcare subsidies should be aimed at promoting all forms of external childcare as equally as possible. An orientation for the appropriate level of subsidies is the additional wage tax resulting from the additional labour supply. This suggests that childcare subsidies should be handled in the income-taxation declaration.