On the Optimal Fiscal Treatment of Family Size

Abstract

Should a benevolent social planner subsidise family size? Typically, contributions assuming exogenous fertility yield an a¢rmative answer, while those assuming endogenous fertility do not reach de…nite conclusions. We re-examine the endogenous fertility model, and …nd that when redistribution is accomplished mostly using non-income taxes, there is indeed a case for subsidising the number of children, as long as poor families tend to have more children. Instead, when redistribution is pursued prevalently using a non-linear income tax, the above rationale for children subsidisation disappears. We …nally argue that whether children are a tax asset or a tax liability depends however on all the policy instruments, and not only on the tax treatment of family size.