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Income Risk, the Tax-Benefit System and the Demand for Children

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  • Fraser, Clive D

Abstract

Because children represent an irreversible commitment, parents might hedge against higher income risk by having fewer children. We show that, under plausible assumptions, recent increases in income risk might have reduced prudent parents' desired fertility. Responses to this via the tax-benefit system are considered. Introducing an expected revenue-neutral transfer-cum-child-benefit system under proportional taxation, which lets the government share the household's income risk, increases desired fertility for parents who would choose to have small families in this system's absence. Pound for pound, the targeted child benefit enhances fertility more than the lump-sum transfer. Copyright 2001 by The London School of Economics and Political Science

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 68 (2001)
Issue (Month): 269 (February)
Pages: 105-25

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Handle: RePEc:bla:econom:v:68:y:2001:i:269:p:105-25

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Cited by:
  1. Kristiina Huttunen & Jenni Kellokumpu, 2012. "The Effect of Job Displacement on Couples? Fertility Decisions," Working Papers 29, Government Institute for Economic Research Finland (VATT).
  2. Meier, Volker & Wrede, Matthias, 2013. "Reducing the excess burden of subsidizing the stork: Joint taxation, individual taxation, and family tax splitting," Munich Reprints in Economics 19213, University of Munich, Department of Economics.
  3. Morissette, Rene & Ostrovsky, Yuri, 2005. "The Instability of Family Earnings and Family Income in Canada, 1986 to 1991 and 1996 to 2001," Analytical Studies Branch Research Paper Series 2005265e, Statistics Canada, Analytical Studies Branch.
  4. Nakagawa, Masao & Sugimoto, Yoshiaki, 2011. "Income distribution and macroeconomics: Fertility adjustment prior to education investment," Economics Letters, Elsevier, vol. 110(2), pages 155-158, February.
  5. Masao Nakagawa & Yoshiaki Sugimoto, 2009. "Income Distribution and Macroeconomics Revisited: The Role of Fertility Adjustment," ISER Discussion Paper 0758, Institute of Social and Economic Research, Osaka University.
  6. Mike Brewer & Anita Ratcliffe & Sarah Smith, 2008. "Does welfare reform affect fertility? Evidence from the UK," IFS Working Papers W08/09, Institute for Fiscal Studies.

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