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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)

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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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Keywords: equivalised income; scale elasticities; life satisfaction;

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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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References listed on IDEAS
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  1. Bernard M. S. van Praag & Barbara E. Baarsma, 2005. "Using Happiness Surveys to Value Intangibles: The Case of Airport Noise," Economic Journal, Royal Economic Society, vol. 115(500), pages 224-246, 01. [Downloadable!] (restricted)
    Other versions:
  2. Markus M. Grabka, 2008. "Codebook for the $PEQUIV File 1984-2007: CNEF Variables with Extended Income Information for the SOEP," Data Documentation 34, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Easterlin, Richard A., 2005. "A puzzle for adaptive theory," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 513-521, April. [Downloadable!] (restricted)
  4. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2003. "The Macroeconomics of Happiness," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 809-827, 09. [Downloadable!] (restricted)
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  5. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August. [Downloadable!] (restricted)
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  6. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
  7. AndrewE. Clark & Ed Diener & Yannis Georgellis & RichardE. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages F222-F243, 06. [Downloadable!] (restricted)
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  8. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur Stone, 2004. "Toward National Well-Being Accounts," American Economic Review, American Economic Association, vol. 94(2), pages 429-434, May. [Downloadable!]
  9. Burkhauser, Richard V. & Smeeding, Timothy M. & Merz, Joachim, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," MPRA Paper 7229, University Library of Munich, Germany. [Downloadable!]
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  10. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  11. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07. [Downloadable!] (restricted)
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  12. Johannes Schwarze, 2003. "Using Panel Data on Income Satisfaction to Estimate Equivalence Scale Elasticity," Review of Income and Wealth, Blackwell Publishing, vol. 49(3), pages 359-372, 09. [Downloadable!] (restricted)
  13. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 94-122, February. [Downloadable!] (restricted)
  14. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August. [Downloadable!] (restricted)
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  15. Andrew Clark, 2003. "Inequality-Aversion and Income Mobility: A Direct Test," DELTA Working Papers 2003-11, DELTA (Ecole normale supérieure). [Downloadable!]
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