The Effects of the Child and Dependent Care Tax Credit (CDCTC) on Child-Care Use and Maternal Labor Supply

This article examines the effects of the child and dependent care tax credit (CDCTC) on paid child-care use and maternal labor supply. Using restricted-use data from the National Household Education Surveys Program, I construct simulated CDCTC benefits. Then, taking advantage of policy variation from year to year, across and within states, and over time, I employ a parameterized difference-in-differences approach to examine the effects of the CDCTC. On average, a $100 increase in CDCTC benefits is associated with a 5.5 percent increase in paid center-based care participation, a 4.7 percent increase in paid nonrelative care participation, and a 1.5 percent increase in maternal employment for the full sample. Subgroup analyses reveal that policy expansion may result in heterogeneous responses in paid child-care participation depending on mothers’ marital status. This project provides important policy implications for the expansion of CDCTC, particularly expansions included in the American Rescue Plan of 2021.