Who should pay an insurance premium for equality of the newborn’s opportunity?

Yosuke Furukawa

Economic Analysis and Policy, 2017, vol. 54, issue C, 1-14

Abstract: In this paper, we develop a three-period model that incorporates parents’ heterogeneous skills and social preferences. Our study shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. We obtain an unacceptable outcome for the current generation. That is, a high planner’s weighting on the newborn’s welfare makes the optimal capital income tax rate more regressive. In addition, the total tax burden of the highest-productivity parent is decreasing with the planner’s weight. Thus, a low-productivity parent incurs a larger share of parents’ welfare loss. This result follows from the trade-off between incentives for high-productivity parents and insurance for the newborn child.

Keywords: Inter-generational inequality; Intra-generational inequality; Optimal taxation (search for similar items in EconPapers)
JEL-codes: E22 E62 H21 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:54:y:2017:i:c:p:1-14

DOI: 10.1016/j.eap.2017.01.004

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