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How is the child allowance to be financed? By income tax or consumption tax?

Author

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  • Masaya Yasuoka
  • Naohisa Goto
Abstract
In economically developed countries, family support policies are undertaken by governments to raise fertility. Because of increased dependency ratios in many aging societies, governments must pay ever-increasing pension benefits. Those governments must somehow increase the number of younger people to make the pension system sustainable. This paper presents an examination of whether child allowances can raise fertility or not. This issue has been analyzed in numerous earlier studies, but this paper presents an examination of the means used to finance such a child allowance: income taxes and consumption taxes. The different means of taxation exert substantially different effects on fertility. The following results are presented herein. First, a child allowance financed by an income tax cannot always raise fertility. However, such an allowance financed by a consumption tax can always raise fertility. Second, this paper presents an examination of an optimal tax policy to maximize social welfare. An optimal child allowance and an optimal income transfer from younger people to older people differ according to whether they are financed by an income tax or by a consumption tax. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Masaya Yasuoka & Naohisa Goto, 2015. "How is the child allowance to be financed? By income tax or consumption tax?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(3), pages 249-269, September.
    • Handle: RePEc:spr:inrvec:v:62:y:2015:i:3:p:249-269
    DOI: 10.1007/s12232-014-0200-1
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    References listed on IDEAS

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    Cited by:

    1. Masaya Yasuoka, 2018. "Fertility, Income Growth and Inflation," Discussion Paper Series 182, School of Economics, Kwansei Gakuin University, revised Jul 2018.
    2. Masaya Shintani & Masaya Yasuoka, 2022. "Fertility, Inequality and Income Growth," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 29-48, March.
    3. Atsushi Miyake & Masaya Yasuoka, 2016. "Which Should the Government Subsidize: Child Care or Elderly Care?," Discussion Paper Series 144, School of Economics, Kwansei Gakuin University, revised Jun 2016.
    4. Yasuoka, Masaya, 2018. "Endogenous Fertility and Pension System," MPRA Paper 86131, University Library of Munich, Germany.
    5. Masaya Yasuoka, 2018. "Fertility and education investment incentive with a pay-as-you-go pension," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(1), pages 37-50, April.

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    More about this item

    Keywords

    Child allowance; Endogenous fertility; Pay-as-you-go pension; Optimal taxation; D10; H55; J13; J14; J18; J26;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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