In 2000, 79 percent of married Canadian women between the ages of 25 and 44 were in the labour force and 75 percent were employed.1 Many Canadian families with working parents use costly child-care, and many of these families take advantage of the child-care expense deduction (CCED): in 1998, 71 percent of families with pre-school children used child-care services to work or study at a given point in time,2 and 868,460 taxfilers reported nearly $2.4 billion in child-care expenditures on 1,390,200 children.3 In this thesis, I examine the effects of parental labour supply and child-care use on children, the impacts that child-care costs have on the labour supply of married mothers, and the fairness of the tax system with respect to child-care costs. Chapters I, and V are introductory and concluding chapters, respectively. In chapter II, I consider the question of whether parental labour supply and child-care use affect child cognitive and behavioural outcomes. Parental labour supply reduces the amount of time parents have for their children. On the other hand, parents can replace their own time with child-care services and can also purchase more market goods with additional income earned at work. I examine this question using the first three cycles of the National Longitudinal Survey of Children and Youth (NLSCY), which provide both a large sample size and a rich source of data, including controls for parenting skills. The possible joint detennination of labour supply and child outcomes is also tested. In chapter III, I estimate the impact of child-care costs on the return to work of married Canadian women with children under three, using data from the 1988 Canadian National Childcare Survey (CNCCS) and Labour Market Activity Survey (LMAS). Data from the 1995 Canadian General Social Survey indicate that Canadian mothers have split views on the issue of whether parental labour supply has deleterious effects on child outcomes. Furthermore, women's views on these issues tend to be consistent with their labour supply, suggesting their views may affect whether they choose to work or not. If women's preferences for work are based on thenviews and are correlated with other explanatory variables such as education and cost of care, the estimated coefficients on these explanatory variables will be biased. In order to allow for these potential differences in responsiveness to childcare costs, I estimate separate models where current or previous occupation and weeks worked in the previous 12 months are used as control variables in the estimation to account for heterogeneity of preferences. In chapter IV of the thesis, I use data from the CNCCS and LMAS to examine the vertical and horizontal equity of the CCED. Vertical equity is evaluated by comparing CCED benefit rates for different family levels of earnings. This is done for dual earner families with childcare costs and similar characteristics. Horizontal equity is examined by investigating whether the existence of the CCED increases or decreases the difference between effective tax rates of families with similar earnings but different labour supplies. I use measures of actual and potential earnings to evaluate both vertical and horizontal equity.

In 2000, 79 percent of married Canadian women between the ages of 25 and 44 were in the labour force and 75 percent were employed.1 Many Canadian families with working parents use costly child-care, and many of these families take advantage of the child-care expense deduction (CCED): in 1998, 71 percent of families with pre-school children used child-care services to work or study at a given point in time,2 and 868,460 taxfilers reported nearly $2.4 billion in child-care expenditures on 1,390,200 children.3 In this thesis, I examine the effects of parental labour supply and child-care use on children, the impacts that child-care costs have on the labour supply of married mothers, and the fairness of the tax system with respect to child-care costs. Chapters I, and V are introductory and concluding chapters, respectively. In chapter II, I consider the question of whether parental labour supply and child-care use affect child cognitive and behavioural outcomes. Parental labour supply reduces the amount of time parents have for their children. On the other hand, parents can replace their own time with child-care services and can also purchase more market goods with additional income earned at work. I examine this question using the first three cycles of the National Longitudinal Survey of Children and Youth (NLSCY), which provide both a large sample size and a rich source of data, including controls for parenting skills. The possible joint detennination of labour supply and child outcomes is also tested. In chapter III, I estimate the impact of child-care costs on the return to work of married Canadian women with children under three, using data from the 1988 Canadian National Childcare Survey (CNCCS) and Labour Market Activity Survey (LMAS). Data from the 1995 Canadian General Social Survey indicate that Canadian mothers have split views on the issue of whether parental labour supply has deleterious effects on child outcomes. Furthermore, women's views on these issues tend to be consistent with their labour supply, suggesting their views may affect whether they choose to work or not. If women's preferences for work are based on thenviews and are correlated with other explanatory variables such as education and cost of care, the estimated coefficients on these explanatory variables will be biased. In order to allow for these potential differences in responsiveness to childcare costs, I estimate separate models where current or previous occupation and weeks worked in the previous 12 months are used as control variables in the estimation to account for heterogeneity of preferences. In chapter IV of the thesis, I use data from the CNCCS and LMAS to examine the vertical and horizontal equity of the CCED. Vertical equity is evaluated by comparing CCED benefit rates for different family levels of earnings. This is done for dual earner families with childcare costs and similar characteristics. Horizontal equity is examined by investigating whether the existence of the CCED increases or decreases the difference between effective tax rates of families with similar earnings but different labour supplies. I use measures of actual and potential earnings to evaluate both vertical and horizontal equity. / Arts, Faculty of / Vancouver School of Economics / Graduate