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Endogenous Fertility And The Design Of Family Taxation

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  • Alessandro Cigno

    ()

  • Annalisa Luporini

    ()

  • Anna Pettini

    ()

Abstract

The paper innovates on the existing optimal taxation literature by taking fertility as endogenous, and allowing for households to be di¤erentiated by ability to raise children, as well as wage rates. In a context where the government cannot observe personal abilities, fertility behaviour conveys a great deal of information about those characteristics, that helps relax the self-selection constraints on the design of policy. One of the results is that, in the absence of explicit inequality aversion, re-distribution should always be in favour of low-wage households, even if the latter happen to have higher laissez-faire utility than high-wage households. Another is that children should be a tax asset to their parents only if market and domestic skills are positively correlated. Even in that case, however, the optimal policy may include an unusual mix of taxes on the number of children, subsidies on child-speci…c commodities, income support for low-wage households, and positive marginal rates of income tax for all.

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Bibliographic Info

Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp03_00.

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Length: 23 pages
Date of creation: Jun 2000
Date of revision:
Handle: RePEc:wpc:wplist:wp03_00

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Keywords: optimal; direct; indirect; taxation; endogenous; fertility; children; self-selection; taxes;

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References

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  1. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  2. Paul Beaudry & Charles Blackorby, 1998. "Taxes and Employment Subsidies in Optimal Redistribution Programs," NBER Working Papers 6355, National Bureau of Economic Research, Inc.
  3. 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.
  4. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  6. Myles, Gareth D., 2000. "On the optimal marginal rate of income tax," Economics Letters, Elsevier, vol. 66(1), pages 113-119, January.
  7. Cigno, Alessandro, 1986. "Fertility and the Tax-Benefit System: A Reconsideration of the Theory of Family Taxation," Economic Journal, Royal Economic Society, vol. 96(384), pages 1035-51, December.
  8. Helmuth Cremer & Arnaud Dellis & Pierre Pestieau, 2003. "Family size and optimal income taxation," Journal of Population Economics, Springer, vol. 16(1), pages 37-54, 02.
  9. 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.
  10. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Transfers to Families with Children as a Principal-Agent Problem," CESifo Working Paper Series 351, CESifo Group Munich.
  11. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
  12. Dan Anderberg & Alessandro Balestrino, 2000. "Household Production and the Design of the Tax Structure," International Tax and Public Finance, Springer, vol. 7(4), pages 563-584, August.
  13. 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.
  14. Apps, P.F. & Rees, R., 1998. "On the Taxation of Trade Within and Between Households," Papers 337, Australian National University - Department of Economics.
  15. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 637-43, October.
  16. 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.
  17. Cigno, Alessandro, 1983. "On Optimal Family Allowances," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 13-22, March.
  18. 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.
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