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ENDOGENOUS FERTILITY AND THE DESIGN OF FAMILY TAXATION

Alessandro Cigno, Annalisa Luporini () and Anna Pettini

CHILD Working Papers from CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY

Abstract: The paper innovates on the existing optimal taxation literature by taking fertility as endogenous, and allowing for households to be di¤erentiated by ability to raise children, as well as wage rates. In a context where the government cannot observe personal abilities, fertility behaviour conveys a great deal of information about those characteristics, that helps relax the self-selection constraints on the design of policy. One of the results is that, in the absence of explicit inequality aversion, re-distribution should always be in favour of low-wage households, even if the latter happen to have higher laissez-faire utility than high-wage households. Another is that children should be a tax asset to their parents only if market and domestic skills are positively correlated. Even in that case, however, the optimal policy may include an unusual mix of taxes on the number of children, subsidies on child-speci…c commodities, income support for low-wage households, and positive marginal rates of income tax for all.

Keywords: optimal; direct; indirect; taxation; endogenous; fertility; children; self-selection; taxes (search for similar items in EconPapers)
JEL-codes: D13 H21 H31 J13 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2000-06
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Journal Article: Endogenous Fertility and the Design of Family Taxation (2002) Downloads
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