Context specificity of childcare out-of-pocket costs and child-contingent benefits

This paper examines the interplay between child contingent income support and out of pocket (OOP) childcare costs in four European countries—Belgium, Poland, Spain, and Sweden. While existing research has extensively analysed cash benefits and early childhood education and care (ECEC) services separately, considerably less is known about how these policies jointly shape families’ income adequacy and labour market participation. Using EUROMOD, enriched with detailed information with regard to legislation on childcare fees, we introduce a novel indicator—the compensation ratio—which captures the degree to which child contingent benefits offset OOP childcare expenses.

Across countries, the compensation ratio reveals distinct income related patterns. In Poland and Sweden, benefits generally exceed OOP childcare costs across most of the income distribution, reflecting strong low income targeting. In Belgium, the compensation ratio is above one only for lower income families, declining sharply with income as childcare fees increase more steeply than benefits. Spain shows a similar but more moderate pattern, with low income families roughly compensated and higher income families receiving insufficient support relative to childcare costs.

Overall, our findings demonstrate that the interaction between childcare fees and child related income support substantially shapes the affordability of childrearing and, by extension, families’ capacity to undergo employment transitions. As the compensation ratio declines with income in several countries, our results suggest that these policy designs may inadvertently create labour market disincentives. The analysis underscores the need for conjoint, rather than isolated, assessment of family policy measures in European welfare states.