Explain what the likely implications and rationale of subsidizing child care.

Question 1: Subsidies for childcare

In the recent budget the Federal Government has proposed significant changes to

the manner in which childcare is subsidised. Details of the changes can be found

here: http://www.budget.gov.au/2015-16/content/glossy/families/html/index.htm

You are asked to consider the economic impact of subsidising childcare. Using basic

economic principles explain what the likely implications and rationale of subsidising

child care are for:

(i) the use of child care.

(ii) related activities such as employment.

Is there any empirical evidence to suggest that the Federal government is likely to

achieve its desired objective of encouraging more females into the labour force

following the birth of a child?

*Please note – when answering these questions you are not required to provide a

detailed description or analysis of the differences between the current subsidy

arrangements and the proposed arrangements.

Often when a subsidy is introduced, economists argue that it will generate a

deadweight loss. Do you believe that this is the case for subsidies for childcare? Why

or why not?

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