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Income Risk, the Tax-Benefit System and the Demand for Children

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  • Fraser, Clive D

Abstract

Because children represent an irreversible commitment, parents might hedge against higher income risk by having fewer children. We show that, under plausible assumptions, recent increases in income risk might have reduced prudent parents' desired fertility. Responses to this via the tax-benefit system are considered. Introducing an expected revenue-neutral transfer-cum-child-benefit system under proportional taxation, which lets the government share the household's income risk, increases desired fertility for parents who would choose to have small families in this system's absence. Pound for pound, the targeted child benefit enhances fertility more than the lump-sum transfer. Copyright 2001 by The London School of Economics and Political Science

Suggested Citation

  • Fraser, Clive D, 2001. "Income Risk, the Tax-Benefit System and the Demand for Children," Economica, London School of Economics and Political Science, vol. 68(269), pages 105-125, February.
  • Handle: RePEc:bla:econom:v:68:y:2001:i:269:p:105-25
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    Cited by:

    1. Mike Brewer & Anita Ratcliffe & Sarah dSmith, 2012. "Does welfare reform affect fertility? Evidence from the UK," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(1), pages 245-266, January.
    2. Kristiina Huttunen & Jenni Kellokumpu, 2016. "The Effect of Job Displacement on Couples' Fertility Decisions," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 403-442.
    3. Masao Nakagawa & Yoshiaki Sugimoto, 2009. "Income Distribution and Macroeconomics Revisited: The Role of Fertility Adjustment," ISER Discussion Paper 0758, Institute of Social and Economic Research, Osaka University.
    4. Nakagawa, Masao & Sugimoto, Yoshiaki, 2011. "Income distribution and macroeconomics: Fertility adjustment prior to education investment," Economics Letters, Elsevier, vol. 110(2), pages 155-158, February.
    5. Volker Meier & Matthias Wrede, 2013. "Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1195-1207, July.
    6. repec:spr:izalbr:v:6:y:2017:i:1:d:10.1186_s40172-017-0057-0 is not listed on IDEAS
    7. Morissette, Rene & Ostrovsky, Yuri, 2005. "The Instability of Family Earnings and Family Income in Canada, 1986 to 1991 and 1996 to 2001," Analytical Studies Branch Research Paper Series 2005265e, Statistics Canada, Analytical Studies Branch.

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