Job Market Paper:

The United States aims to provide universal access to high-quality pre-kindergarten (Pre-K) to promote holistic child development and long-run education and earning outcomes. However, limited funding has constrained the scope of state-level universal Pre-K (UPK) programs, and therefore, little is known about providers’ responses to UPK policies. This paper fills in the knowledge gap by examining the supply-side market impacts of Vermont’s UPK program, which provides a uniform per-child subsidy for all 3- and 4-year-olds. Exploiting variation in treatment intensity across counties, I estimate two-way fixed effects and event-study models. I find that in more intensely treated counties, UPK increases provider entry and exit, but does not improve the aggregate quality of care. I then estimate a static demand and supply model to simulate the consequences of the UPK policy. I find that the marginal costs and fixed costs for UPK programs are much higher, while families’ utility on UPK programs are offset by the higher prices. Therefore, the policy may have failed to generate sufficient financial incentives for providers to invest in quality improvements, limiting the expansion of high-quality care. A counterfactual reallocation of funds from the means-tested Child Care Financial Assistance Program (CCFAP) to UPK increases both demand for high-quality care and providers’ incentives to upgrade. These findings highlight the importance of subsidy design for aligning family access with policy goals of expanding high-quality early education.