This study investigates the relationship between child care subsidy policies and the quality of centers and homes participating in the subsidy program. Child care center quality is higher in states with higher reimbursement rates and higher tiered reimbursement rates, even after controlling for other state differences. A $100 increase in the base reimbursement rate is associated with a 30 percent higher likelihood of providers meeting our composite quality measure, while a $100 increase in the range of tiered reimbursement rates is associated with a 40 percent higher likelihood of meeting this composite. In homes, findings are more tentative, but higher tiered reimbursement rates, use of contracts, and our provider-friendly policy index predict select indicators of quality.
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