The Fiscal Treatment of Family Size: A Further Look

In this Chapter we take a more detailed look at the fiscal treatment of family size under one of the tax systems reviewed in Chap. 5 , namely the mixed tax system, and expand the household choice model by introducing bi-dimensional differences among household types. So, our concern is the design of a socially optimal system of direct and indirect taxes, constrained exclusively by the limits of the government’s information, in a context of endogenous fertility—that is, in a context where the number and the well-being of the children are seen as the output of a special kind of home-production. The analysis, therefore, allows us to make a meaningful and complete comparison with the tax treatment of household production, which we studied in Chaps. 2 and 3 employing for the most part a mixed tax system and using a model with bi-dimensional differences. Furthermore, we can introduce a significant extension of the model by assuming that there are four, rather than two, household types. Our treatment is based mostly on Cigno (2001) and Balestrino et al. (2001, 2002).