International Review of Economics

, Volume 62, Issue 3, pp 249–269 | Cite as

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

Research Article

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.

Keywords

Child allowance Endogenous fertility Pay-as-you-go pension Optimal taxation 

JEL Classification

D10 H55 J13 J14 J18 J26 

References

  1. Ahn N, Mira P (2002) A note on the changing relationship between fertility and female employment rates in developed countries. J Popul Econ 15:667–682CrossRefGoogle Scholar
  2. Apps P, Rees R (2004) Fertility, taxation and family policy. Scand J Econ 106(4):745–763CrossRefGoogle Scholar
  3. Barro RJ, Becker GS (1989) Fertility choice in a model of economic growth. Econometrica 57(2):481–501CrossRefGoogle Scholar
  4. Becker GS, Barro RJ (1988) A reformulation of the economic theory of fertility. Q J Econ 103(1):1–25CrossRefGoogle Scholar
  5. Day C (2012) Economic growth, gender wage gap and fertility rebound. Econ Rec 88:88–99CrossRefGoogle Scholar
  6. Eckstein Z, Wolpin KI (1985) Endogenous fertility and optimal population size. J Public Econ 27:93–106CrossRefGoogle Scholar
  7. Fanti L, Gori L (2009) Population and neoclassical economic growth: a new child policy perspective. Econ Lett 104:27–30CrossRefGoogle Scholar
  8. Galor O, Weil D (1996) The gender gap, fertility, and growth. Am Econ Rev 86(3):374–387Google Scholar
  9. Hirazawa M, Yakita A (2009) Fertility, child care outside the home, and pay-as-you-go social security. J Popul Econ 22(3):565–583CrossRefGoogle Scholar
  10. Laroque G, Salanié B (2008) Does fertility respond to financial incentives? CESifo Working Paper Series, No. 2339, CESifo Group MunichGoogle Scholar
  11. Lin S, Tian X (2003) Population growth and social security financing. J Popul Econ 16:91–110CrossRefGoogle Scholar
  12. Lissiotou P (2012) Is fertility affected by family policy? Evidence from the introduction of child benefits. In: Proceedings of 68th annual congress of the international institute of public financeGoogle Scholar
  13. Lutz W (1999) Will Europe be short of children?. In: Family observer, European observatory on family matters. European Communities, Luxembourg, pp 8–16Google Scholar
  14. MacDonald P (2006) Low fertility and the state: the efficacy of policy. Popul Dev Rev 32(3):485–510CrossRefGoogle Scholar
  15. Martínez DF, Iza A (2004) Skill premium effects on fertility and female labor force supply. J Popul Econ 17:1–16CrossRefGoogle Scholar
  16. Milligan K (2002) Quebec’s Baby bonus: can public policy raise fertility? Backgrounder. C. D, Home Institute, JanuaryGoogle Scholar
  17. Nishimura K, Zhang J (1992) Pay-as-you-go public pensions with endogenous fertility. J Public Econ 48(2):239–258CrossRefGoogle Scholar
  18. Ono T (2003) Social security policy with public debt in an aging economy. J Popul Econ 16(2):363–387Google Scholar
  19. Oshio T (2001) Child-care \(\cdot\) reform in pension system and the fertility rate. Q Social Secur Res 36(4):535–546 (in Japanese)Google Scholar
  20. Oshio T, Yasuoka M (2009) Maximum size of social security in a model of endogenous fertility. Econ Bull 29(2):656–666Google Scholar
  21. Razin A, Sadka E (1990) Migration and pension with international capital mobility. J Public Econ 74:141–150CrossRefGoogle Scholar
  22. Sleebos JE (2003) Low fertility rates in OECD countries: facts and policy responses. OECD Social, Employment and Migration Working Papers, No. 15Google Scholar
  23. van Groezen B, Leers T, Meijdam L (2003) Social security and endogenous fertility: pensions and child allowances as Siamese twins. J Public Econ 87:233–251CrossRefGoogle Scholar
  24. van Groezen B, Meijdam L (2008) Growing old and staying young: population policy in an ageing closed economy. J Popul Econ 21(3):573–588CrossRefGoogle Scholar
  25. Yasuoka M (2006) The relationship between the fertility rate and tax policy. Q Social Secur Res 42(1):80–90 (in Japanese)Google Scholar
  26. Yasuoka M, Miyake A (2010) Change in the transition of the fertility rate. Econ Lett 106(2):78–80CrossRefGoogle Scholar
  27. Yasuoka M, Goto N (2011) Pension and child care policies with endogenous fertility. Econ Model 28:2478–2482CrossRefGoogle Scholar
  28. Zhang J (1997) Fertility, growth and public investments in children. Can J Econ 30(4a):835–843CrossRefGoogle Scholar
  29. Zhang J, Zhang J (1998) Social security, intergenerational transfers, and endogenous growth. Can J Econ 31–5:1225–1241CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.School of EconomicsKwansei Gakuin UniversityNishinomiyaJapan
  2. 2.Faculty of Economics and Business AdministrationThe University of KitakyushuKitakyushuJapan

Personalised recommendations