Parental Leave, (In)formal Childcare, and Long-Term Child Outcomes

We evaluate the effect of an Austrian parental leave extension from the child’s first to their second birthday on long-term child outcomes. Exploiting a sharp birthday cutoff-based discontinuity in the eligibility for extended leave, we find that longer parental leave improves on average child health outcomes, but has no effect on the child’s labor market outcomes. When accounting for the counterfactual mode of care, we find significant gains in all outcomes for children for whom the reform most likely induced a replacement of informal childcare with maternal care. This highlights the importance of the counterfactual scenario in such evaluations.