Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting
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Analyzing a homogenous household setting with endogenous fertility and endogenous labor supply, we demonstrate that moving from joint taxation to individual taxation and adapting child benefits so as to keep fertility constant entails a Pareto improvement. The change is associated with an increase in labor supply and consumption and a reduction of the marginal income tax, while the child benefit may move in either direction. Similarly, a move from joint taxation to some scheme of family tax splitting increases labor supply and welfare.
KeywordsIncome taxation Fertility Labor supply
JEL ClassificationH21 H24 J22
We would like to thank two anonymous referees and participants at conferences and seminars at Bamberg, Barcelona, Copenhagen, Essen, Galway, Munich, Tallinn, and Vienna for many valuable and useful comments and suggestions.
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