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Family Policies: What Does the Standard Endogenous Fertility Model Tell Us?

  • THOMAS BAUDIN

There exists a large consensus in the economic literature and in the economic institutions about the legitimacy of policies subsidizing education. This legitimacy lies in the fact that education is a source of positive externalities. In a standard framework of endogenous fertility, the present paper shows that this result is still valid but that subsidizing education also requires to tax births. Indeed, education subsidies decrease the net cost of children such that parents can exhibit a too high fertility rate. Furthemore, when health is introduced as another source of externalities, the model shows that health expenditures have not always to be subsidized. Indeed, the taxation of births plays the role of an indirect subsidy on health expenditures because it decreases the cost of health relatively to the cost of the quantity of children. When the externalities on education are very high relatively to the positive externalities on health, the indirect subsidy on health can exceed the subsidy that is really needed. Then health expenditures have to be taxed. This results are discussed in the light of family policies implemented in China and Sub-Saharan Africa.

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 13 (2011)
Issue (Month): 4 (08)
Pages: 555-593

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Handle: RePEc:bla:jpbect:v:13:y:2011:i:4:p:555-593
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