Quasi-experimental evidenceon the relationbetween child care subsidiesand child care quality

In this article we present quasi-experimental evidence on the relation between
child care subsidies and child care quality. We exploit the difference in fund-
ing of private and public centers in the Netherlands. A recent subsidy cut
reduced funding for private centers while funding for public centers was unaf-
fected. The quality measurements are from a panel survey in which centers'
quality was evaluated through classroom assessments by trained observers.
Using differences-in-differences we find that the subsidy reduction caused a
statistically significant decrease in quality of one fifth of a standard deviation.
We also present results for nonlinear differences-in-differences estimators. The
decline in quality is robust across specifications and appears to be driven by a
decline in the middle of the distribution. A limitation of our data set is that
our pre-reform period is short, so that we cannot perform pre-reform placebo
tests.