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Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples

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  • Takuya Obara
  • Yoshitomo Ogawa

Abstract

This study examines the optimal tax structure in an endogenous fertility model with non-cooperative couples. In the model, both child quality and quantity are suboptimal due to the non-cooperative behavior of couples. Moreover, we consider the external effects of children on society and center-based childcare services. In such a unified model, we characterize the formulas for optimal income tax rates, child tax/subsidy rates, and tax/subsidy rates on center-based childcare services. We find that income taxation, not child subsidy, corrects the suboptimal low fertility level caused by the non-cooperative behavior of couples, and that a child tax can be optimal to alleviate the deadweight loss from income taxation. We also identify the condition under which a child subsidy is needed. The subsidy for external childcare services corrects the external effects of children on society, not the non-cooperative behavior of couples.

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  • Takuya Obara & Yoshitomo Ogawa, 2021. "Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples," Working Papers e164, Tokyo Center for Economic Research.
    • Handle: RePEc:tcr:wpaper:e164
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    1. Takuya Obara & Yoshitomo Ogawa, 2020. "Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples," Discussion Paper Series 211, School of Economics, Kwansei Gakuin University, revised Jan 2021.

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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