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Building an Ex-Ante Simulation Model
for Estimating Capacity Impact, Benefit
Incidence and Cost Effectiveness of
Child Car...
Outline
01
02
03
Background on Childcare in Turkey
Scenarios and Policy Options
Findings04
The Model
Previous work on child care in Turkey
The bank’s engagement and analytical work on child care, gender and female labor for...
In Turkey pre-primary enrolment ratio
is low given GDP per capita
Source: World Bank 2015, Supply and Demand for Child Car...
Children from disadvantaged backgrounds are
less likely to benefit from centre based child
care services
Enrolment rate in...
6
Low capacity of child care – capacity needs vary
by province
Source: World Bank 2015, Supply and Demand for Child Care S...
Enrolment in private child care centres is low
Compared to the Latin American countries, Arab states, the OECD, or the EU ...
1.01
0.92
0.84
0.740.730.71 0.7 0.7 0.7 0.68
0.620.610.590.58
0.52 0.5 0.49
0.460.450.45
0.410.41 0.4 0.4 0.4
0.350.330.32...
Purely demand side subsidy to households
Demand side subsidy to formally working
women using child care: highly regressive...
Questions going into the Child Care study
The pieces of the puzzles when we started supply and demand side data collection...
Most Binding Standards
Infrastructure (particularly garden) requirements are reported as most
difficult standards to compl...
Willingness to pay
Results from Demand Side Household Data set
12
0
100
200
300
400
500
600
700
willingnesstopay
Less than...
Earnings difference is low
The difference between women’s potential (and actual) earnings and child care
costs is too low ...
14
Conclusions after Child Care Study
Many families find child care unavailable and
expensive – and have positive percepti...
Costs, willingness to pay and subsidies
TL /
month
Welfare
indicator,
education
level, SES
Current
costs for
private
provi...
Policy scenarios
Scenario Name Description
SimpleScenarios
Scenario 1 Supply Side Investment Grant only:
One-time investme...
(+) Investment
grant
 Increase in the
number of enrolled
through increase in
capacity
Government
Families
Childcare
Provi...
(+) Operational grant
 Increase in the
number of enrolled
through increase in
affordability
Government
Families
Childcare...
(+) Voucher
 Increase in the
number of enrolled
through increase in
affordability
Government
FamiliesChildcare
Providers
...
(+) Investment
grant
(+) Operational
grant
 Increase in the
number of enrolled
through increase in
capacity
 Increase in...
(+) Investment
grant (+) Voucher
 Increase in the
number of enrolled
through increase in
capacity
Government
FamiliesChil...
What We Can Estimate
Using the simulation model
22
Capacity
Impact on capacity
and estimated
number of new
centres
Enrolme...
The Model
STEP 1
Supply Side model
STEP 2
Demand Side Model
STEP 3
Simultaneous calculation that takes into
account change...
Supply side simulation
Data
• Supply side data was in 2014 for the World
Bank study “Supply and Demand for Child
care Serv...
Supply side simulation
The Model
(+) Price per child
Net Present
Value
Probability to
invest
(-) setup cost of the
centre ...
Supply side simulation
Calculating the Estimated Capacity Increase Impact of the
Grants
• E(Capacity)Baseline = Probabilit...
Example
Centre A in the baseline
• Setup cost of the centre if the centre were to be opened up today: 171,000 TL
• Monthly...
Example –
Centre A receives an investment grant
Centre A recei
• If it were to receive 50,000 TL worth of investment grant...
Example –
Centre A receives an operational grant
Centre A
• If it were to receive 500 TL operational grant (for 5 years)
N...
Demand side simulation
• We make use of Turkey EU-SILC (Survey of
Income and Living Conditions) 2012 dataset
which is repr...
Demand side simulation
Example: Increase in capacity is %50
Children
benefitting from
pre-school
services
Children not
ben...
Demand side simulation
Impact of vouchers
• The main impact of the vouchers is through the income effect
introduced by the...
Demand side simulation
Impact of vouchers
• The expected number of children attending preschool as a result of the afforda...
Demand side simulation
Impact of the operational grants come both from the capacity and
affordability (income effect)
Inde...
Demand side simulation
Impact of operational grants through increasing affordability and
capacity
• The expected number of...
Costing
• Different calculations are necessary to calculate the cost of the investment,
operational grants and the voucher...
Tax revenues
• Two kinds of tax revenue is calculated for each scenario. These are corporation tax revenues and
income tax...
Impact on Capacity
Capacity increase is maximized in the scenario that combines the investment grant
and the operational g...
Impact on Preschool enrolment
Number of newly enrolled children
39
Capacity
Number of newly
enrolled children due
to capac...
Impact on Enrolment Rate
Increase in Enrolment Rate (% points) for overall
population and for the poor
40
Enrolment rate
I...
Benefit Incidence
Benefits to the bottom 40% of population (%)
41
% of the newly enrolled
children from bottom 40%
% of th...
Benefit Incidence of new enrolments
Preschool enrolment rates of children aged 3-5 by per capita income quintile
0
.2.4.6....
Benefit incidence of grants
Benefit incidence of the grants and/or vouchers by per capita income quintile
0.0 0.0 0.0 0.0 ...
Total Costs (million TL)
(Accruing to Child care Providers vs Households)
44
Benefits to
Child Care
Providers
Benefits to
...
Total Tax Revenue (million TL)
(Accruing to Child care Providers vs Households)
45
Newly employed women
in centres
Corpora...
Total Net Cost (million TL)
(Total cost- tax revenue)
46
-314
3,861
2,532
1,292
3,968
2,574
1,266
-1,000 -500 0 500 1,000 ...
Cost Effectiveness
Scenario 1
Scenario 2A
Scenario 2B
Scenario 3
Scenario 4A
Scenario 4B
Scenario 5
0
2
4
6
8
10
12
-2,000...
Cost Effectiveness and Benefit Incidence
Most cost effective
Least cost effective
Revenue
generating
High cost,
high enrol...
Conclusions on use of model
• The mechanism for the delivery of a child care
subsidy matters for results in terms of benef...
Thank you.
Contact details:
Dr. Meltem Aran
Development Analytics
meltem.aran@developmentanalytics.org
+44 1865 6000 70
Acknowledgments
51
This study was supported by the Swedish International
Development Cooperation Agency (SIDA). The author...
Suggested Citation for this Work
52
Aran, Meltem A. and Munoz Boudet, Ana Maria and
Aktakke, Nazli, Building an Ex Ante Si...
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Building an Ex-Ante Simulation Model for Estimating Capacity Impact, Benefit Incidence and Cost Effectiveness of Child Care Subsidies

Public financing and subsidization of child care can allow for more equitable access to child care in places where public provision and capacity are low. The mechanisms of the delivery of the subsidy matter, however, in terms of who gets the benefits of the subsidy and overall cost effectiveness, given the initial conditions in the child care market. This paper sets out an ex ante simulation model using a supply side provider level and demand side household model and combining the two models for estimating the benefit incidence of expanded capacity and enrolments as a result of the child care subsidies, looking at different mechanisms of the delivery including investment grants to providers, operational monthly grants to child care providers, combinations of the investment and operational grants and demand side vouchers to households. The model is applied to empirical data from child care centres and households in Turkey and results reveal that the choice of the subsidy delivery model is not trivial, and has a strong bearing on both the benefit incidence and cost effectiveness of the subsidy. In the case of Turkey, where significant supply side constraints exist in the market, a demand side voucher system is shown to be the least cost effectiveness measure of delivery of the subsidy, and while a demand-side voucher can be pro-poor targeted, it is not necessarily the option that reveals the most “pro-poor results” both in terms of newly generated capacity and the impact of the subsidy on household welfare. The simulation model developed here can be applied in other country contexts, with the only data requirements being micro data on costs and pricing structure of child care providers as well as household data with variables on household welfare and child care utilization.

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Building an Ex-Ante Simulation Model for Estimating Capacity Impact, Benefit Incidence and Cost Effectiveness of Child Care Subsidies

  1. 1. Building an Ex-Ante Simulation Model for Estimating Capacity Impact, Benefit Incidence and Cost Effectiveness of Child Care Subsidies: An application using provider-level data from Turkey Meltem Aran Ana Maria Munoz Boudet Nazli Aktakke Nov 3, 2016 Presentation at Harvard University John F. Kennedy School of Government
  2. 2. Outline 01 02 03 Background on Childcare in Turkey Scenarios and Policy Options Findings04 The Model
  3. 3. Previous work on child care in Turkey The bank’s engagement and analytical work on child care, gender and female labor force participation dated back to 2009.. 3 2009 Life Chances in Turkey Expanding Opportunies for the Next Generation 2010 Recent Trends in Female Labor Force Participation 2014 Can Child care Vouchers get Turkish mothers back to work? 2015 Supply and Demand for Child Care Services in Turkey
  4. 4. In Turkey pre-primary enrolment ratio is low given GDP per capita Source: World Bank 2015, Supply and Demand for Child Care Services in Turkey. (Graph is drawn using data from 2012) Pre-primary enrolment rate, gross Turkey: 38.6 % (2015) OECD: 82.5 % (2013) EU: 93.9 % (2013)
  5. 5. Children from disadvantaged backgrounds are less likely to benefit from centre based child care services Enrolment rate in centre based child care for the age group 3-5 (%), By quintiles of per capita household income, 2012 17 16.7 17.8 22.1 27.5 1.2 2.3 3.7 10.1 27.6 0 20 40 60 80 100 1 (En yoksul) 2 3 4 5 (En zengin) Source: Turkey Income and Living Conditions Survey 2012, authors calculations (Poorest) (Richest) Kindergarten Mostly pubic provision Child Care or Preschool Mostly private provision
  6. 6. 6 Low capacity of child care – capacity needs vary by province Source: World Bank 2015, Supply and Demand for Child Care Services in Turkey A total of 58,380 facilities are needed to be built to reach 100% enrolment rate
  7. 7. Enrolment in private child care centres is low Compared to the Latin American countries, Arab states, the OECD, or the EU countries, children enrolled in private institutions remain low in Turkey Percentage of enrolment in pre-primary education in private institutions (%) Source: World Bank, World Development Indicators 11.6 46.5 37.0 30.5 24.5 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Percentageofenrolmentinpre-primary educationinprivateinstitutions(%) Turkey Arab states EU OECD countries World Latin America and Caribbean
  8. 8. 1.01 0.92 0.84 0.740.730.71 0.7 0.7 0.7 0.68 0.620.610.590.58 0.52 0.5 0.49 0.460.450.45 0.410.41 0.4 0.4 0.4 0.350.330.32 0.190.18 0.1 0.04 0.52 0 0.2 0.4 0.6 0.8 1 1.2 Totalpublicexpenditureonpre-primaryeducation(ISCED0)asa percentageofGDP,2010 Also not surprisingly, public expenditure on pre-primary education as a share of GDP is very low in Turkey compared to the EU countries Total public expenditure on pre-primary education as a percentage of GDP, 2010 Source: Eurydice and Eurostat Report 2014
  9. 9. Purely demand side subsidy to households Demand side subsidy to formally working women using child care: highly regressive• Two prominent Turkish NGOs (ACEV and KAGIDER) advocated for a demand side transfer to formally employed mothers 300 TL per month (back in 2009). • A purely demand side subsidy to formally working mothers would have been highly regressive. • If targeting poorer women – not cost effective in terms of activation. • Targeting employable – middle income women in urban areas would have worked – but still not cost effective in terms of generating supply of services and increasing enrolments.
  10. 10. Questions going into the Child Care study The pieces of the puzzles when we started supply and demand side data collection 10 Is there an “unmet demand” for child care – or is low utilization a function of social norms/unwillingness of households to use child care? Why is Utilization Low? Norms or capacity constraints? Barriers to entry? Why does the market not clear? Why is private investment low? What are households’ expectations of child care in terms of quality standards? What is their willingness to pay for these services? Willingness to Pay What models can work for improving access to poor/middle class households? What are some of the current constraints that impede the development of such models? What form (if any) should subsidies take?
  11. 11. Most Binding Standards Infrastructure (particularly garden) requirements are reported as most difficult standards to comply with by MONE accredited private providers 7.2 8.6 10.5 12.5 13.8 13.8 14.5 14.5 15.8 16.4 16.4 18.4 23.0 31.6 39.5 43.4 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 In nursery classes under primary schools: teachers and administrative staff with university degree Teacher : four-years university degree in preschool education, child development departments, vocational high school degree in child development plus university degree… The curriculum provided by MoNE can be applied for both 0-36 month- and 36-66 month- old children Painting must be done with materials easy to be cleaned Total area covered by windows in a classroom In pre-schools: All teaching and managerial staff with university degree 1 director room (min. 10 m2) 1 play room (min. 15 m2) In pre-schools: support staff, cook, furnaceman, driver, technician and security staff with high school degree Certificate from relevant public authorities indicating preparedness to fire Director: four-years-university degree in educational sciences Floor covered with a not harmful material for the health of children Min. 1,5 m2 per child in the classroom Floor covered with a material easy to be cleaned The garden with a soft floor (with enough grass and soil min. 1,5 m2 per child for the development motor and cognitive skills) In a school building having garden or at the ground floor of a multi-floor building or at a floor having connection with the ground floor MoNE-Private % of service providers that report these specific standards as being most difficult to follow. Each provider was asked to select 3 requirements from the list. 11
  12. 12. Willingness to pay Results from Demand Side Household Data set 12 0 100 200 300 400 500 600 700 willingnesstopay Less than basic education Basic education (8 yrs) High school University or more Education level of woman 0 100 200 300 400 500 600 700 willingnesstopay <=300 300-600 >600 Income groups Average willingness to pay increases with higher levels of education and higher household income per capita Source: Turkey Child Care Assessment Demand Side Dataset
  13. 13. Earnings difference is low The difference between women’s potential (and actual) earnings and child care costs is too low (or negative), oftentimes not making it worthwhile for women less than university degrees to take up work…. 13 Earnings diffference = Potential (or actual) earnings - Child care costs Median monthly full day price of private service providers 700 TL Median monthly full day price of public service providers 300 TL 0 500 1000 1500 2000 2500 Less than basic education Basic education (8 yrs) High school University or more Education level of women Average current monthly income (for employed women) Average predicted monthly income if participated in the labor force (for non-employed women) Average willingness to pay Median monthly full day price of private service providers, data coming from supply side Median monthly full day price of public service providers, data coming from supply side Source: Turkey Childcare Assessment Demand Side dataset Earnings difference and willingness to pay for a kindergarten in the neighborhood
  14. 14. 14 Conclusions after Child Care Study Many families find child care unavailable and expensive – and have positive perceptions about centre based care (after age 2.5). Lack of supply and unmet demand Willing to Pay Quality expectations of families are more about the content of the child care services and about psychological needs and security of the child while current standards focus on infrastructure. Mismatch in quality and binding regulations Some willingness to pay but lower than current prices. class and poor households. The earnings difference work working mothers is low. Services need to be subsidized in order to make them more accessible for middle class and the poor. What is the most cost effective form of subsidies? How much should we provide in subsidies? Who should we target? Subsidies Missing piece
  15. 15. Costs, willingness to pay and subsidies TL / month Welfare indicator, education level, SES Current costs for private provision Lower costs for private provision Requires subsidy Can be reached through lower cost private provision + subsidies Currently able to access services 15
  16. 16. Policy scenarios Scenario Name Description SimpleScenarios Scenario 1 Supply Side Investment Grant only: One-time investment grant to child care centres Investment Grant: 50,000 TL given to the service provider one time for initial investment. Scenario 2A Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Operational Grant: 300 TL per child per month given to the service provider for 5 years. Scenario 2B Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Operational Grant: 300 TL per child per month given to the service provider for 5 years. Price cap: 750 TL (the service provider agrees to limit the maximum price to 750 TL per child per month under this contract for the duration of the subsidy) Scenario 3 Demand Side Grant only: Vouchers to households per child enrolled Voucher to Household: 300 TL per child per month, targeting households in bottom 40% of income percentile. CombinationScenarios Scenario 4A Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no price cap) Investment Grant: 50,000 TL given to the service provider one time for initial investment. + Operational Grant: 300 TL per child per month given to the service provider for 5 years. Scenario 4B Supply Side Investment and Operational Grant combined with Price Cap: One-time investment grant and monthly per child operational grant combined (with price cap) Investment Grant: 50,000 TL given to the service provider one time for initial investment. + Operational Grant: 300 TL per child per month given to the service provider for 5 years. Price cap: 750 TL (the service provider agrees to limit the maximum price to 750 TL per child per month under this contract for the duration of the subsidy) Scenario 5 Supply Side Investment Grant and Demand Side Grant combined: One-time investment grant and monthly voucher to households combined Investment Grant: 50,000 TL given to the service provider one time for initial investment. + Voucher to Household: 300 TL per child per month, targeting households in bottom 40% of income percentile.
  17. 17. (+) Investment grant  Increase in the number of enrolled through increase in capacity Government Families Childcare Providers Scenario1: Investment Grant Capacity impact only
  18. 18. (+) Operational grant  Increase in the number of enrolled through increase in affordability Government Families Childcare Providers Scenario 2: Operational Grant Scenario 2A: With price cap Scenario 2B: Without price cap Capacity and affordability impact
  19. 19. (+) Voucher  Increase in the number of enrolled through increase in affordability Government FamiliesChildcare Providers Scenario 3: Voucher Affordability impact only
  20. 20. (+) Investment grant (+) Operational grant  Increase in the number of enrolled through increase in capacity  Increase in the number of enrolled through increase in affordability Government FamiliesChildcare Providers Scenario 4: Investment + Operational Grant Scenario 4A: With price cap Scenario 4B: Without price cap Capacity and affordability impact
  21. 21. (+) Investment grant (+) Voucher  Increase in the number of enrolled through increase in capacity Government FamiliesChildcare Providers Scenario 5: Investment + Voucher Capacity and affordability impact
  22. 22. What We Can Estimate Using the simulation model 22 Capacity Impact on capacity and estimated number of new centres Enrolments Impact on pre-school enrolments (coming from new capacity and increased affordability) Total CostBenefit Incidence Benefit incidence of new enrolments and grants Cost Effectiveness Total Revenue Net cost
  23. 23. The Model STEP 1 Supply Side model STEP 2 Demand Side Model STEP 3 Simultaneous calculation that takes into account changes in enrolment as a result of capacity increase and affordability increase
  24. 24. Supply side simulation Data • Supply side data was in 2014 for the World Bank study “Supply and Demand for Child care Services in Turkey” (World Bank, 2015) • Data was collected from 603 centre-based child care providers in 5 provinces in Turkey (Istanbul, Gaziantep, Denizli, Eskişehir and Samsun) • For the simulation model we make use of a sample of private providers in the dataset making up a total of 226 providers • The dataset includes a wide range of information on child care centres such as their set-up and operational costs and the prices they charge per child Methodology • Our main assumption is that the centres in the dataset are potential investors. The data come from the empirical data set, but are treated in the model as hypothetical cases (as if investments in these centres have not yet been made) • Our aim is to calculate an investment probability for the centres with and without subsidies • In order to do this we use information from the dataset: • Price per child • Setup cost of the centre if it were to be opened up today • Monthly variable costs: personnel costs, stationary costs, utility costs and travel costs • Total number of children enrolled in the centre and calculate the net present value (NPV) of the centre for a period of 10 years • Secondly, the NPV of an investment is mapped onto a probability of investment through a functional form
  25. 25. Supply side simulation The Model (+) Price per child Net Present Value Probability to invest (-) setup cost of the centre if the centre were to be opened up today (-) Monthly variable costs Net Present Value = − Setup Cost + 𝑡=1 10 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑐ℎ𝑖𝑙𝑑 ∗ 𝐸𝑛𝑟𝑜𝑙𝑚𝑒𝑛𝑡 −𝑇𝑜𝑡𝑎𝑙 𝑚𝑜𝑛𝑡ℎ𝑙𝑦 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠 ∗ 12 ∗ (1 − 𝑡𝑎𝑥) 1 + 𝑟 𝑡 + Terminal Value (+) Investment grant (+) Operational grant * Pass through Net Present Value (TL) Probabilitytoinvest
  26. 26. Supply side simulation Calculating the Estimated Capacity Increase Impact of the Grants • E(Capacity)Baseline = Probability to invest in Baseline*Total capacity of the centre • E(Capacity)Sc X = Probability to invest in Sc. X*Total capacity of the centre These expected capacities are then summed up and the percent capacity increase achieved with Sc. X is calculated with the following equation: • % Increase in total capacitySc X = (E(Total capacity)Sc X-E(Total capacity)Baseline)/ E(Total capacity)Baseline
  27. 27. Example Centre A in the baseline • Setup cost of the centre if the centre were to be opened up today: 171,000 TL • Monthly variable costs: 21,000 TL • Price per child: 910 TL • Total number of children enrolled: 51 Net Present Value = −171,000 + 𝑡=1 10 910∗51 −21000 ∗12(1−𝑡𝑎𝑥) (1+𝑟) 𝑡 +𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 Net Present Value= 399,173 Probability to invest = %26.73 Note: r = 0.40, EBITDA Multiple = 10.5, tax=0.32.
  28. 28. Example – Centre A receives an investment grant Centre A recei • If it were to receive 50,000 TL worth of investment grant 𝑁𝑒𝑡 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 = −171,000 + 𝟓𝟎, 𝟎𝟎𝟎 + 𝑡=1 10 910∗51 −21000 ∗12(1−𝑡𝑎𝑥) (1+𝑟) 𝑡 + 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 Net Present Value = 449,173 Probability to invest = %37.56 Newly created capacity = (%37.56 - %26.73) x 51 = 5.52 children
  29. 29. Example – Centre A receives an operational grant Centre A • If it were to receive 500 TL operational grant (for 5 years) Net Present Value = −171,000 + 𝑡=1 5 910+ 𝟓𝟎𝟎∗𝟎.𝟓 ∗51 −21000 ∗12(1−𝑡𝑎𝑥) (1+𝑟) 𝑡 + 𝑡=6 10 910∗51 −21000 ∗12(1−𝑡𝑎𝑥) (1+𝑟) 𝑡 + 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 Net Present Value = 610,911 Probability to invest = %75.20 Newly created capacity = (%75.2 - %26.73) x 51 = 24.7 children Existing capacity
  30. 30. Demand side simulation • We make use of Turkey EU-SILC (Survey of Income and Living Conditions) 2012 dataset which is representative for Turkey • Dataset has information on a wide range of issues related to the household such as wealth, income, labour force participation of the members • Dataset includes information on 3-5 year old children’s enrolment to centre-based child care • We only make use of the part of the dataset collected from households located in urban areas Methodology • The capacity increase found in the supply side simulation is used as the “exogenous shock” in the demand side simulations. • The number of children aged 3-5 who are currently enrolled in preschool or day care in the EU SILC 2012 dataset is multiplied with the estimated capacity increase coming from the supply side simulation for each scenario. • Once the new capacity is calculated, this value is divided by the total number of children attending preschool in Turkey in the baseline. • Lastly, this value is used as the per cent capacity increase and it is multiplied by the number of children attending preschool in the dataset. • After the capacity increase amounts in SILC are all determined, the number of new spots due to the increased capacity are allocated to the children in the dataset aged 3-5, based on their propensity to attend preschool. Data
  31. 31. Demand side simulation Example: Increase in capacity is %50 Children benefitting from pre-school services Children not benefitting from pre-school services Children who will benefit from the capacity increase The propensity to attend preschool is calculated using a probit model which uses a wide range of independent variables to predict a child’s propensity to attend preschool. The probit equation is as follows: P(pre-school or daycare)=φ(X’) Independent variables are: • child’s age, • mother’s level of education, • mother’s employment status, • father’s level of education, • father’s employment status, • per capita household income, • household size, • number of adults in the household aged 65+, • number of children in the household aged 0-6, • region the household is located in Impact of supply side grants on enrolment is through capacity. Children who have the highest propensity to enrol become enrolled.
  32. 32. Demand side simulation Impact of vouchers • The main impact of the vouchers is through the income effect introduced by the voucher – hence the increased enrolment is due to increased affordability Independent variables are: • child’s age, • mother’s level of education, • mother’s employment status, • father’s level of education, • father’s employment status, • per capita household income, • household size, • number of adults in the household aged 65+, • number of children in the household aged 0-6, • region the household is located in P1: Probability to attend pre-schoolPro b (+) Voucher P2: Recalculated probability to attend pre-school when there is a voucher creating a positive income effect Children benefitting from pre-school services Children not benefitting from pre-school services Children who will benefit from pre- school services through increased affordability
  33. 33. Demand side simulation Impact of vouchers • The expected number of children attending preschool as a result of the affordability increase is calculated using the equation below E(Number of children enrolled due to affordability increaseSc X )= (P2-P1)*individual weight in the dataset
  34. 34. Demand side simulation Impact of the operational grants come both from the capacity and affordability (income effect) Independent variables are: • child’s age, • mother’s level of education, • mother’s employment status, • father’s level of education, • father’s employment status, • per capita household income, • household size, • number of adults in the household aged 65+, • number of children in the household aged 0-6, • region the household is located in P1: Probability to attend pre-school when there is an operational grant and children are allocated the new capacity Prob (+) Operational grant * Pass through P2: when there is an operational grant and children are allocated the new capacity and there is also the positive income shock Children benefitting from pre-school services Children not benefitting from pre- school services Children who will benefit from the capacity increase Children who will benefit from pre-school services because of an affordability increase
  35. 35. Demand side simulation Impact of operational grants through increasing affordability and capacity • The expected number of children attending preschool as a result of the affordability increases is calculated using the equation below E(Number of children enrolled due to affordability increaseSc X )= (P2-P1)*individual weight in the dataset • The number of children enrolled due to capacity increase is also calculated • Lastly these numbers are added together to have the overall effect: Number of newly enrolled childrenSc X=Number of children enrolled due to the capacity increaseSc X+ E(Number of children enrolled due to affordability increaseSc X) Number of children enrolled due to the capacity increaseSc X = 1 % 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑆𝑐 𝑋 ∗𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑟𝑟𝑒𝑛𝑡𝑙𝑦 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 𝑖𝑛 𝑡ℎ𝑒 𝑑𝑎𝑡𝑎𝑠𝑒𝑡 𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑤𝑒𝑖𝑔ℎ𝑡
  36. 36. Costing • Different calculations are necessary to calculate the cost of the investment, operational grants and the vouchers: 1. For investment grants: Total Cost = (Number of children enrolled due to the capacity increase/Average capacity of a centre)*Investment grant 2. For the operational grant, when there is no price cap: Total cost = 𝑡=1 5 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 𝑖𝑛 𝑇𝑢𝑟𝑘𝑒𝑦 𝑎𝑓𝑡𝑒𝑟 𝑔𝑟𝑎𝑛𝑡 ∗ 𝑝𝑒𝑟 𝑐ℎ𝑖𝑙𝑑 𝑔𝑟𝑎𝑛𝑡 ∗ 12 1 + 𝑟 𝑡 3. For the operational grant with the price cap: Total cost = 𝑡=1 5 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 𝑎𝑙𝑟𝑒𝑎𝑑𝑦 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑏𝑜𝑡𝑡𝑜𝑚 80% + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑒𝑤𝑙𝑦 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛) ∗ 𝑝𝑒𝑟 𝑐ℎ𝑖𝑙𝑑 𝑔𝑟𝑎𝑛𝑡 ∗ 12 1 + 𝑟 𝑡 4. The cost of the vouchers: Total cost = 𝑡=1 5 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛 𝑎𝑙𝑟𝑒𝑎𝑑𝑦 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑏𝑜𝑡𝑡𝑜𝑚 40% + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑒𝑤𝑙𝑦 𝑒𝑛𝑟𝑜𝑙𝑙𝑒𝑑 𝑐ℎ𝑖𝑙𝑑𝑟𝑒𝑛) ∗ 𝑝𝑒𝑟 𝑐ℎ𝑖𝑙𝑑 𝑣𝑜𝑢𝑐ℎ𝑒𝑟 ∗ 12 1 + 𝑟 𝑡
  37. 37. Tax revenues • Two kinds of tax revenue is calculated for each scenario. These are corporation tax revenues and income tax revenues from newly employed staff at the centres 1. Tax revenues obtained from the newly opening centres: This is in the form of income and corporation taxes making a cumulative total of 32% of the profits 2. Tax revenues obtained from employee contributions: This is composed of the women working in child care centres that opened up as a result of the grants. Hence as a lower bound estimate for tax revenue - all the women employed in new child care centres are assumed to be receiving the minimum wage . • Net present value of tax revenues are calculated for a period of 10 years.
  38. 38. Impact on Capacity Capacity increase is maximized in the scenario that combines the investment grant and the operational grant (and does not impose a price cap) (Sc. 4A). 38 Capacity Increase (%)Capacity Increase: Number of New Centres 783 3,306 2,394 0 4,132 3,339 783 0 1,000 2,000 3,000 4,000 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no price cap) Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scenari o1 Scenari o2A Scenari o2B Scenari o3 Scenari o4A Scenari o4B Scenari o5 6 24 17 0 30 24 6 0 5 10 15 20 25 30 35 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child… Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to… Scenari o1 Scenari o2A Scenari o2B Scenari o3 Scenari o4A Scenari o4B Scenari o5
  39. 39. Impact on Preschool enrolment Number of newly enrolled children 39 Capacity Number of newly enrolled children due to capacity increase Affordability Number of newly enrolled children due to affordability increase 0 100,000 200,000 300,000 400,000 500,000 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no… Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child operational grant combined… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scen ario 1 Scen ario 2A Scen ario 2B Scen ario 3 Scen ario 4A Scen ario 4B Scen ario 5 # of newly enrolled children due to capacity increase Total number of newly enrolled children
  40. 40. Impact on Enrolment Rate Increase in Enrolment Rate (% points) for overall population and for the poor 40 Enrolment rate Increase I enrolment rate (percentage points) Enrolment rate of poor(er) children Increase in enrolment rate of the poorest 40% 1.6 7.9 5.7 0.9 9.6 7.6 2.6 0.0 4.1 3.6 1.9 6.0 6.2 2.1 0 1 2 3 4 5 6 7 8 9 10 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant… Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child operational grant… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scena rio1 Scena rio2A Scena rio2B Scena rio3 Scena rio4A Scena rio4B Scena rio5
  41. 41. Benefit Incidence Benefits to the bottom 40% of population (%) 41 % of the newly enrolled children from bottom 40% % of the benefit going to bottom 40% 0 25 31 100 30 40 39 0 29 41 100 30 43 100 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no… Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child operational grant combined… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scenar io1 Scenar io2A Scenar io2B Scenar io3 Scenar io4A Scenar io4B Scenar io5
  42. 42. Benefit Incidence of new enrolments Preschool enrolment rates of children aged 3-5 by per capita income quintile 0 .2.4.6.8 1 1 2 3 4 5 Scenario 1: Supply Side Investment Grant only Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Scenario 2A: Supply Side Operational Grant only Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 1 2 3 4 5 Scenario 2B: Supply Side Operational Grant only with Price Cap Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Scenario 3: Demand Side Grant only Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 1 2 3 4 5 Investment grant:50000 TL, Operational grant:300 TL Price cap:750 TL, Voucher:0 TL Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Scenario 4A: Supply Side Investment and Operational Grant combined Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Scenario 4B: Supply Side Investment and Operational Grant combined with Price Cap Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Scenario 5: Supply Side Investment Grant and Demand Side Grant combined Baseline Capacity increase Affordability increase 0 .2.4.6.8 1 EnrolmentrateforChildrenaged3-5 1 2 3 4 5 Investment grant:50000 TL, Operational grant:300 TL Price cap:750 TL, Voucher:0 TL Baseline Capacity increase Affordability increase
  43. 43. Benefit incidence of grants Benefit incidence of the grants and/or vouchers by per capita income quintile 0.0 0.0 0.0 0.0 0.0 0 200400600800 1,000 1 2 3 4 5 Scenario 1: Supply Side Investment Grant only 157.3 252.2 265.9 311.3 427.6 0 200400600800 1,000 Totalbenefit(inmillionTL) 1 2 3 4 5 Scenario 2A: Supply Side Operational Grant only 151.1 247.9 264.0 309.6 0.0 0 200400600800 1,000 1 2 3 4 5 Scenario 2B: Supply Side Operational Grant only with Price Cap 310.7 413.7 0.0 0.0 0.0 0 200400600800 1,000 Totalbenefit(inmillionTL) 1 2 3 4 5 Scenario 3: Demand Side Grant only 165.7 284.4 287.0 318.3 434.2 0 200400600800 1,000 Totalbenefit(inmillionTL) 1 2 3 4 5 Scenario 4A: Supply Side Investment and Operational Grant combined 163.7 291.4 284.8 316.2 0.0 0 200400600800 1,000 Totalbenefit(inmillionTL) 1 2 3 4 5 Scenario 4B: Supply Side Investment and Operational Grant combined with Price Cap 317.0 417.1 0.0 0.0 0.0 0 200400600800 1,000 Totalbenefit(inmillionTL) 1 2 3 4 5 Scenario 5: Supply Side Investment Grant and Demand Side Grant combined
  44. 44. Total Costs (million TL) (Accruing to Child care Providers vs Households) 44 Benefits to Child Care Providers Benefits to Households 39 3,939 2,639 568 4,342 3,025 885 0 1,414 973 724 1,490 1,056 734 0 1,000 2,000 3,000 4,000 5,000 6,000 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no price cap) Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child operational grant combined (with price cap) Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scena rio1 Scena rio2A Scena rio2B Scena rio3 Scena rio4A Scena rio4B Scena rio5 Total benefit accruing to child care providers (million TL) Total benefit accruing to households (million TL)
  45. 45. Total Tax Revenue (million TL) (Accruing to Child care Providers vs Households) 45 Newly employed women in centres Corporation and Income Tax 333 1,407 1,019 0 1,759 1,422 333 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant… Supply Side Investment and Operational Grant Combined with Price Cap:… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households… Scen ario 1 Scen ario 2A Scen ario 2B Scen ario 3 Scen ario 4A Scen ario 4B Scen ario 5
  46. 46. Total Net Cost (million TL) (Total cost- tax revenue) 46 -314 3,861 2,532 1,292 3,968 2,574 1,266 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Supply Side Investment Grant only: One-time investment grant to child care centres. Supply Side Operational Grant only: Monthly per student operational grant (no price cap) Supply Side Operational Grant only with Price Cap: Monthly per student operational grant (with price cap) Demand Side Grant only: Vouchers to households per child enrolled Supply Side Investment and Operational Grant combined: One-time investment grant and monthly per child operational grant combined (no… Supply Side Investment and Operational Grant Combined with Price Cap: One-time investment grant and monthly per child operational grant combined (with… Supply Side Investment Grant and Vouchers Combined: One-time investment grant and monthly voucher to households combined Scena rio1 Scena rio2A Scena rio2B Scena rio3 Scena rio4A Scena rio4B Scena rio5 Total Cost - Total Tax Revenue = Total Net Cost
  47. 47. Cost Effectiveness Scenario 1 Scenario 2A Scenario 2B Scenario 3 Scenario 4A Scenario 4B Scenario 5 0 2 4 6 8 10 12 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Increaseinenrolmentrate(%point) Net annual cost per newly enrolled child (TL) Most cost effective Least cost effective Revenue generating High cost, high enrolment High cost, Low enrolment Low cost, High enrolment Low cost, Low enrolment
  48. 48. Cost Effectiveness and Benefit Incidence Most cost effective Least cost effective Revenue generating High cost, high enrolment High cost, Low enrolment Low cost, High enrolment Low cost, Low enrolment Scenario 1 Scenario 2A Scenario 2B Scenario 3 Scenario 4A Scenario 4B Scenario 5 0 2 4 6 8 10 12 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Increaseinenrolmentrateforthebottom40% (%point) Net annual cost per newly enrolled child (TL)
  49. 49. Conclusions on use of model • The mechanism for the delivery of a child care subsidy matters for results in terms of benefit incidence and cost effectiveness. • Targeting “poor households” may not be the most pro-poor way of expanding services or subsidizing child care - in fact the poor children benefit more in absolute terms when they are not targeted in the case of Turkey. • Applications of the methodology to other country contexts is possible. Both supply and demand side data are needed to establish the simulation model and results.
  50. 50. Thank you. Contact details: Dr. Meltem Aran Development Analytics meltem.aran@developmentanalytics.org +44 1865 6000 70
  51. 51. Acknowledgments 51 This study was supported by the Swedish International Development Cooperation Agency (SIDA). The authors would like to thank Rıdvan Kurtipek, Yıldız Yapar, Pınar Özel Ucuzal and Dilek Okkalı Şanalmış (Turkey Ministry of Development); Burcu Ertuğrul and Fatih Kaynar (Turkey Ministry of Education); Güler Özdoğan, Akın Yumuş and Fatma Küçükbaşol (Turkey Ministry of Family and Social Policies); Facundo Cuevas (The World Bank); Öykü Uluçay and Tomas Bergenholtz (Swedish Consulate) for comments and guidance received during methodology review meetings held in Ankara in February-March 2016.
  52. 52. Suggested Citation for this Work 52 Aran, Meltem A. and Munoz Boudet, Ana Maria and Aktakke, Nazli, Building an Ex Ante Simulation Model for Estimating the Capacity Impact, Benefit Incidence, and Cost Effectiveness of Child Care Subsidies: An Application Using Provider-Level Data from Turkey (December 14, 2016). World Bank Policy Research Working Paper No. 7917. Available at SSRN: https://ssrn.com/abstract=2885545

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