Welfare and macroeconomic effects of family policies: insights from an OLG model

Oliwia Komada

No 62, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

Abstract: What are the welfare and macroeconomic effects of family policies and how do they depend on policy composition? I answer those questions in overlapping generations model calibrated to the US. I account for the idiosyncratic income risk, redistribution via social security, and tax and benefit system. I explicitly model child-related tax credit, child care subsidies, and child allowance. I show the expansion of the family policy yields higher welfare. The expenditure on the optimal policy accounts for approximately 3% of GDP. Even though the optimal family policy is three times bigger than the status quo policy, taxes decrease when the optimal policy is implemented. Therefore, reform is self-financing. The structure of family policy is crucial for welfare evaluation. Tax credit and child allowance generate higher welfare gains than child care.

Keywords: family policy; pension system; welfare; income instability (search for similar items in EconPapers)
JEL-codes: D21 E62 H31 H55 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2021
New Economics Papers: this item is included in nep-age, nep-ias, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:fme:wpaper:62

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