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Endogenous Fertility and the Design of Family Taxation

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  • Alessandro Balestrino
  • Alessandro Cigno

    ()

  • Anna Pettini

Abstract

The paper innovates on the existing optimal taxation literature by taking fertility as endogenous, and allowing for households to be differentiated by their ability to raise children, as well as by their ability to raise income. In a context where the government cannot observe personal abilities, fertility behaviour conveys a great deal of information about those characteristics, which helps to relax the self-selection constraints on re-distribution. Bi-dimentional household differentiation introduces the possibility that re-distribution will be from households with low utility to households with high utility, and that it may be optimal to accentuate or reverse the sign of laissez-faire utility inequality. Contrary to popular belief, we find that it is not necessarily optimal for the tax system to be so designed that an additional child would lighten the tax burden on his or her parents. If it is, the optimal policy may include an unusual mix of taxes on number of children, subsidies on child-specific commodities, income support for low-wage households, and positive marginal income tax rates for all. Copyright Kluwer Academic Publishers 2002

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 9 (2002)
Issue (Month): 2 (March)
Pages: 175-193

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Handle: RePEc:kap:itaxpf:v:9:y:2002:i:2:p:175-193

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: optimal direct and indirect taxation; endogenous fertility; comparative advantage; self-selection; child benefits;

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  1. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May.
  3. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 637-43, October.
  4. CREMER, Helmuth & DELLIS, Arnaud & PESTIEAU, Pierre, . "Family size and optimal income taxation," CORE Discussion Papers RP -1603, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Beaudry, Paul & Blackorby, Charles, 2004. "Taxes And Employment Subsidies In Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 708, University of Warwick, Department of Economics.
  6. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution, Elsevier, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
  7. Apps, P.F. & Rees, R., 1998. "On the Taxation of Trade Within and Between Households," Papers, Australian National University - Department of Economics 337, Australian National University - Department of Economics.
  8. Myles, Gareth D., 2000. "On the optimal marginal rate of income tax," Economics Letters, Elsevier, vol. 66(1), pages 113-119, January.
  9. Cigno, Alessandro & Pettini, Anna, 2002. "Taxing family size and subsidizing child-specific commodities?," Journal of Public Economics, Elsevier, vol. 84(1), pages 75-90, April.
  10. Nerlove, Marc & Razin, Assaf & Sadka, Efraim, 1993. "Children: A Capital Good or a Base for Income Redistribution Policies," Public Finance = Finances publiques, , , vol. 48(Supplemen), pages 78-84.
  11. Nava, Mario & Schroyen, Fred & Marchand, Maurice, 1996. "Optimal fiscal and public expenditure policy in a two-class economy," Journal of Public Economics, Elsevier, vol. 61(1), pages 119-137, July.
  12. Cigno, Alessandro, 1986. "Fertility and the Tax-Benefit System: A Reconsideration of the Theory of Family Taxation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(384), pages 1035-51, December.
  13. Alessandro Balestrino & Alessandro Cigno & Anna Pettini, 2003. "Doing Wonders with an Egg: Optimal Re-distribution When Households Differ in Market and Non-Market Abilities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(3), pages 479-498, 07.
  14. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  15. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  16. Cigno, Alessandro, 1983. "On Optimal Family Allowances," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 13-22, March.
  17. Dan Anderberg & Alessandro Balestrino, 2000. "Household Production and the Design of the Tax Structure," International Tax and Public Finance, Springer, Springer, vol. 7(4), pages 563-584, August.
  18. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
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