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Children, happiness and taxation

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Author Info
Leonardo Becchetti () (University of Rome Tor Vergata)
Elena Giachin Ricca (University of Rome Tor Vergata)
Alessandra Pelloni (University of Rome Tor Vergata)
Abstract

Empirical analyses on the determinants of life satisfaction often include the impact of the number of children variable among available controls without fully discriminating between the two (socio- relational and pecuniary) components. In our empirical analysis on the German Socioeconomic Panel we show that, when introducing household income without correction for the number of members, the pecuniary effect prevails and the sign is negative while, when we equivalise income with the most commonly adopted equivalence scales, the non pecuniary (socio-relational) effect emerges and the impact of the variable is positive and significant above a minimal scale elasticity threshold. We further reject slope homogeneity and show that the positive relational effect is stronger for males, below median income households and East Germans. We interpret these subsample split results as driven by heterogeneous opportunity costs. Our empirical results give rise to a paradox: why people have children if the aggregate effect on life satisfaction is negative? We provide in the paper some interpretations consistent with our findings. Some of them are based on motivational complexity. This implies that demographic policies and the paradox are strictly connected. Effectiveness of tax/subsidies impacting on fertility crucially depends on whether the children paradox may be solved within the self-interested rationality paradigm.

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Paper provided by Econometica in its series Econometica Working Papers with number wp12.

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Length: 52
Date of creation: Sep 2009
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Handle: RePEc:ent:wpaper:wp12

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Related research
Keywords: equivalised income; scale elasticities; life satisfaction;

Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D10 - Microeconomics - - Household Behavior - - - General
J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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This page was last updated on 2009-11-21.


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