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?

  • Masaya YasuokaEmail author
  • Naohisa Goto
Research Article


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.


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

JEL Classification

D10 H55 J13 J14 J18 J26 


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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

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