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Family Taxation, Fertility, and Horizontal Equity: A Political Economy Perspective

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  • Alessandro Balestrino

Abstract

This paper intends to make a two-fold contribution to the literature. First, it studies a political economy model of family taxation using a household economics approach to behaviour; the nature of the winning policy is found to depend on whether i) the parents control their fertility or not, ii) they value their children or not. Second, it investigates the question whether the winning policy is capable to achieve horizontal equity (i.e. the requirement that all agents who are in all "relevant" senses identical should be treated identically); it turns out that under endogenous fertility, any winning policy trivially satisfies horizontal equity, but if fertility is exogenous for some of (or all) the parents, horizontal equity is virtually impossible to satisfy. The assessment on whether a given family taxation scheme attains horizontal equity objectives cannot therefore be independent from the assessment on the nature of fertility behaviour.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3774.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3774

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Related research

Keywords: family taxation; horizontal equity; fertility; political economy; median voter; family size;

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References

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  1. Dasgupta, Partha, 2000. "Reproductive externalities and fertility behaviour," European Economic Review, Elsevier, Elsevier, vol. 44(4-6), pages 619-644, May.
  2. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, Elsevier, vol. 59(2), pages 219-237, February.
  3. Henrik Jordahl & Luca Micheletto, 2005. "Optimal Utilitarian Taxation and Horizontal Equity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 681-708, October.
  4. Gravelle, Jane & Gravelle, Jennifer, 2006. "Horizontal Equity and Family Tax Treatment: The Orphan Child of Tax Policy," National Tax Journal, National Tax Association, vol. 59(3), pages 631-49, September.
  5. 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).
  6. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521497695.
  7. Bergstrom, T. & Blomquist, S., 1993. "The Political Economy of Subsidized Day Care," Papers, Michigan - Center for Research on Economic & Social Theory 93-30, Michigan - Center for Research on Economic & Social Theory.
  8. Alan J. Auerbach & Kevin A. Hassett, 2002. "A New Measure of Horizontal Equity," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1116-1125, September.
  9. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Endogenous Fertility And The Design Of Family Taxation," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp03_00, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  10. Alessandro Cigno, 1998. "Fertility decisions when infant survival is endogenous," Journal of Population Economics, Springer, Springer, vol. 11(1), pages 21-28.
  11. King, Mervyn A, 1983. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," Econometrica, Econometric Society, Econometric Society, vol. 51(1), pages 99-115, January.
  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. Mervyn A. King, 1980. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," NBER Working Papers 0468, National Bureau of Economic Research, Inc.
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