Local Economic Consequences of Investment in Children: Capitalization of Child Care Services

25 Pages Posted: 21 Feb 2018

See all articles by Lars-Erik Borge

Lars-Erik Borge

Norwegian University of Science and Technology (NTNU) - Faculty of Social Sciences and Technology Management

Jørn Rattsø

Norges Teknisk-Naturvitenskapelige Universitet

Date Written: January 15, 2018

Abstract

Recent analyses of intergenerational mobility show that investments in children pay big dividends. The priority of resources in early childhood also affects the working of the local economy. Geographic variation in child care services motivates location of families and thereby influences housing markets. In this paper we analyze this local dimension of universal child care during a period of national reform to raise and equalize the child care coverage across Norway. We apply a rich dataset of housing transactions and characteristics for six years (2001-2006) and combine them with local government level data about quantity and quality of child care and various community controls. Given a reform driving the expansion of child care coverage with central government financing, we investigate the relationship between child care and housing prices using a variety of panel models. The robustness of the results are studied under the stronger assumption that only changes in coverage were mandated. The results show that housing prices respond to child care and are consistent with the recent literature on capitalization of schooling. In the first difference model, 10% increase in child care coverage, about one standard deviation, raises house prices by 3%. We conclude that child care reform initiates adjustments at housing markets and confirms the role of geographic sorting as part of local fiscal allocations.

Keywords: capitalization, child care, housing prices, local government

JEL Classification: H710, H750, R210, R230, R320

Suggested Citation

Borge, Lars-Erik and Rattsø, Jørn, Local Economic Consequences of Investment in Children: Capitalization of Child Care Services (January 15, 2018). CESifo Working Paper Series No. 6809, Available at SSRN: https://ssrn.com/abstract=3126014 or http://dx.doi.org/10.2139/ssrn.3126014

Lars-Erik Borge (Contact Author)

Norwegian University of Science and Technology (NTNU) - Faculty of Social Sciences and Technology Management ( email )

NO-7491 Trondheim
Norway

Jørn Rattsø

Norges Teknisk-Naturvitenskapelige Universitet ( email )

Høgskoleringen
Trondheim NO-7491, 7491
Norway

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