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Family Taxation, Fertility, and Horizontal Equity: A Political Economy Perspective

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  • Alessandro Balestrino

Abstract

This paper intends to make a two-fold contribution to the literature. First, it studies a political economy model of family taxation using a household economics approach to behaviour; the nature of the winning policy is found to depend on whether i) the parents control their fertility or not, ii) they value their children or not. Second, it investigates the question whether the winning policy is capable to achieve horizontal equity (i.e. the requirement that all agents who are in all "relevant" senses identical should be treated identically); it turns out that under endogenous fertility, any winning policy trivially satisfies horizontal equity, but if fertility is exogenous for some of (or all) the parents, horizontal equity is virtually impossible to satisfy. The assessment on whether a given family taxation scheme attains horizontal equity objectives cannot therefore be independent from the assessment on the nature of fertility behaviour.

Suggested Citation

  • Alessandro Balestrino, 2012. "Family Taxation, Fertility, and Horizontal Equity: A Political Economy Perspective," CESifo Working Paper Series 3774, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3774
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    References listed on IDEAS

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    1. Henrik Jordahl & Luca Micheletto, 2005. "Optimal Utilitarian Taxation and Horizontal Equity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 681-708, October.
    2. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    3. Alessandro Balestrino & Alessandro Cigno & Anna Pettini, 2002. "Endogenous Fertility and the Design of Family Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(2), pages 175-193, March.
    4. Alan J. Auerbach & Kevin A. Hassett, 2002. "A New Measure of Horizontal Equity," American Economic Review, American Economic Association, vol. 92(4), pages 1116-1125, September.
    5. Bergstrom, Ted & Blomquist, Soren, 1996. "The political economy of subsidized day care," European Journal of Political Economy, Elsevier, vol. 12(3), pages 443-457, November.
    6. Helmuth Cremer & Arnaud Dellis & Pierre Pestieau, 2003. "Family size and optimal income taxation," Journal of Population Economics, Springer;European Society for Population Economics, vol. 16(1), pages 37-54, February.
    7. Mervyn A. King, 1980. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," NBER Working Papers 0468, National Bureau of Economic Research, Inc.
    8. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, April.
    9. Dasgupta, Partha, 2000. "Reproductive externalities and fertility behaviour," European Economic Review, Elsevier, vol. 44(4-6), pages 619-644, May.
    10. Gravelle, Jane & Gravelle, Jennifer, 2006. "Horizontal Equity and Family Tax Treatment: The Orphan Child of Tax Policy," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 631-649, September.
    11. King, Mervyn A, 1983. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," Econometrica, Econometric Society, vol. 51(1), pages 99-115, January.
    12. Alessandro Cigno, 1998. "Fertility decisions when infant survival is endogenous," Journal of Population Economics, Springer;European Society for Population Economics, vol. 11(1), pages 21-28.
    13. 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 1035-1051, December.
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    More about this item

    Keywords

    family taxation; horizontal equity; fertility; political economy; median voter; family size;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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