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Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples

Takuya Obara and Yoshitomo Ogawa

No e164, Working Papers from Tokyo Center for Economic Research

Abstract: This study examines the optimal tax structure in an endogenous fertility model with non-cooperative couples. In the model, both child quality and quantity are suboptimal due to the non-cooperative behavior of couples. Moreover, we consider the external effects of children on society and center-based childcare services. In such a unified model, we characterize the formulas for optimal income tax rates, child tax/subsidy rates, and tax/subsidy rates on center-based childcare services. We find that income taxation, not child subsidy, corrects the suboptimal low fertility level caused by the non-cooperative behavior of couples, and that a child tax can be optimal to alleviate the deadweight loss from income taxation. We also identify the condition under which a child subsidy is needed. The subsidy for external childcare services corrects the external effects of children on society, not the non-cooperative behavior of couples.

Pages: 71 pages
Date: 2021-09
New Economics Papers: this item is included in nep-pbe
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Working Paper: Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples (2021) Downloads
Working Paper: Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples (2021) Downloads
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