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Children, happiness and taxation

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Abstract

Empirical analyses on the determinants of life satisfaction often include the impact of the number of children variable among available controls without fully discriminating between the two (sociorelational and pecuniary) components. In our empirical analysis on the German Socioeconomic Panel we show that, when introducing household income without correction for the number of members, the pecuniary effect prevails and the sign is negative while, when we equivalise income with the most commonly adopted equivalence scales, the non pecuniary (socio-relational) effect emerges and the impact of the variable is positive and significant above a minimal scale elasticity threshold. We further reject slope homogeneity and show that the positive relational effect is stronger for males, below median income households and East Germans. We interpret these subsample split results as driven by heterogeneous opportunity costs. Our empirical results give rise to a paradox: why people have children if the aggregate effect on life satisfaction is negative? We provide in the paper some interpretations consistent with our findings. Some of them are based on motivational complexity. This implies that demographic policies and the paradox are strictly connected. Effectiveness of tax/subsidies impacting on fertility crucially depends on whether the children paradox may be solved within the self-interested rationality paradigm.

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  • Becchetti, Leonardo & Giachin Ricca, Elena & Pelloni , Alessandra, 2010. "Children, happiness and taxation," AICCON Working Papers 64-2009, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  • Handle: RePEc:ris:aiccon:2009_064
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    Cited by:

    1. Leonardo Becchetti & Alessandra Pelloni, 2013. "What are we learning from the life satisfaction literature?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(2), pages 113-155, June.
    2. Leonardo Becchetti & Andrew E. Clark & Elena Giachin Ricca, 2011. "The Value of Diplomacy: Bilateral Relations and Immigrant Well-Being," CEIS Research Paper 190, Tor Vergata University, CEIS, revised 29 Mar 2011.
    3. Leonardo Becchetti & Andrew E. Clark & Elena Giachin Ricca, 2011. "The Value of Diplomacy: Bilateral Relations and Immigrant Well-Being," CEIS Research Paper 190, Tor Vergata University, CEIS, revised 29 Mar 2011.
    4. Thomas Hansen, 2012. "Parenthood and Happiness: a Review of Folk Theories Versus Empirical Evidence," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 108(1), pages 29-64, August.

    More about this item

    Keywords

    equivalised income; scale elasticities; life satisfaction;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D10 - Microeconomics - - Household Behavior - - - General
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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