Early-Career Scholar Forum

How Elastic is Capacity Choice in Welfare Facilities?
Evidence from Notches in Japan’s Childcare Subsidy Scheme

Friday, 19 March 2021 | 12:15 - 13:00 (JST)
Zoom Meeting
  • Fukai Taiyo Economic and Social Research Institute & UTokyo Graduate School of Economics
  • Daiji Kawaguchi Professor, Graduate School of Economics, The University of Tokyo

Many countries are struggling to provide childcare services to help people balance work and family life, but the focus has tended to be on building new facilities rather than making more effective use of existing facilities. In this study, we estimated the critical structural parameters for the supply of childcare services and conducted policy simulations by scrutinizing the institutional design of public childcare services in Japan. Specifically, we focused on the amount of money each facility receives per child admitted, or the unit cost of childcare, which is funded by a combination of government subsidies and user fees. As this amount decreases discontinuously with the size of the facility, this creates an incentive for facilities to not increase their size any further, which causes facilities to bunch at a threshold. This degree of bunching has information that allows us to identify structural parameters that specify how elastic the supply of capacity is to the unit cost. Policy simulations using this model show that it is possible to expand the supply of childcare centers without increasing the burden on either government or users by eliminating these discontinuities. This result provides a new perspective on the usefulness of identifying key production parameters and optimizing the existing infrastructure, rather than only considering the construction of new facilities.