The Impact of Childcare Policies on Mental Health and Education: Evidence from Subsidy Changes in the Netherlands

Abstract
In this paper, we investigate the impact of daycare utilization on children’s mental health and schooling outcomes in the Netherlands. Using administrative records on childcare attendance and costs, prescription drugs, and national test scores, we employ a simulated instrumental variable approach to control for endogeneity in childcare utilization. The instrument exploits frequent changes in subsidy schemes and other cost factors of childcare, inducing variation in expected childcare costs both over time and across provinces. Our preliminary reduced form results suggest that daycare utilization leads to a lower probability of using prescription drugs for mental health conditions at ages 4-12 and to a higher percentile rank in the national test at the age of 12. Our results may have implications for understanding the consequences of childcare policies on child development.