The Effect of the Universal Child Care Cash Benefit on Female Labour Supply in Spain

Abstract

The aim of this paper is to measure the potential and real effect of universal child care cash benefit schemes on female labour supply. This subsidy, which was considered ground-breaking due to the fact that it was available to all, was introduced through the Spanish Government Act 35/2007 (BOE, 2007) and was in effect until 2010. Known as the “baby bonus”, this subsidy of €2,500 per child born aimed to increase the birth rate in Spain. The introduction of this family policy provides a unique setting for a quasi-experiment, using semi-parametric DiD analysis and individual panel data sourced from the EU-SILC dataset. The results provide evidence of the positive effect of a cash-for-care subsidy that reduces the costs of a new child and increases female labour supply.