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Endogenous Fertility and the Design of Family Taxation

  • Alessandro Balestrino
  • Alessandro Cigno

    ()

  • Anna Pettini

The paper innovates on the existing optimal taxation literature by taking fertility as endogenous, and allowing for households to be differentiated by their ability to raise children, as well as by their ability to raise income. In a context where the government cannot observe personal abilities, fertility behaviour conveys a great deal of information about those characteristics, which helps to relax the self-selection constraints on re-distribution. Bi-dimentional household differentiation introduces the possibility that re-distribution will be from households with low utility to households with high utility, and that it may be optimal to accentuate or reverse the sign of laissez-faire utility inequality. Contrary to popular belief, we find that it is not necessarily optimal for the tax system to be so designed that an additional child would lighten the tax burden on his or her parents. If it is, the optimal policy may include an unusual mix of taxes on number of children, subsidies on child-specific commodities, income support for low-wage households, and positive marginal income tax rates for all. Copyright Kluwer Academic Publishers 2002

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 9 (2002)
Issue (Month): 2 (March)
Pages: 175-193

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Handle: RePEc:kap:itaxpf:v:9:y:2002:i:2:p:175-193
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  1. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP -1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. 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.
  3. Robin Boadway & Michael Keen, 1999. "Redistribution," Working Papers 983, Queen's University, Department of Economics.
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  9. Cigno, Alessandro, 1983. "On Optimal Family Allowances," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 13-22, March.
  10. 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.
  11. 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.
  12. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  13. 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.
  14. Paul Beaudry & Charles Blackorby, 1998. "Taxes and Employment Subsidies in Optimal Redistribution Programs," NBER Working Papers 6355, National Bureau of Economic Research, Inc.
  15. 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.
  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. 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.
  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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