The Effects of a Universal Child Care Reform on Child Health - Evidence from Sweden

This paper studies the effect of a Swedish universal, public child care reform on children's physical and non-physical health outcomes. The centerpiece of the child care reform was the introduction of a a maximum fee rule which led to a considerabl cap in the prices for formal, public child care. We draw on a unique set of merged population register data from the province of Scania, following over the period 1999-2008. It contains merged information at the individual level from the population register, the income tax register, the medical birth register and the inpatient and outpatient registers. The outpatient register contains all ambulatory care contacts including all contacts with physicians and therapists. Visits are recorded by day, and diagnoses are recorded for each visit. Our identification strategy exploits the maximum fee rule reform as an exogenous source of variation in child care prices within the household. More precisely, we compare health outcomes of siblings at the same age being subject to the reform or not within households. In addition, we use household-level child care prices obtained from a survey to assess the impact of the price effect generated by the reform. Our results suggest that children being fully affected by the reform have better physical health at ages 4-5 and 6-7, are significantly better off in development and psychological conditions at age 6-7. These effects are particularly distinct for children from low income families, being in line with the literature on early child interventions. Changes in child care prices also predict better physical health for younger children. The results are mainly driven by two mechanisms, a crowding out effect of informal care and an income effect. For physical health, the observed pattern of child health development follwos the predictions of the hygiene hypothesis. Childhood developments in non-physical health is strongly supported by the model of human capital formation. The findings suggest that the availability of affordable high quality and universal, public child care plays a crucial role for health development throughout childhood. An analysis of children's health costs moreover provides important implications for public health expenditures.