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

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 t...

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Bibliographic Details
Published in:International review of economics 2015-09, Vol.62 (3), p.249-269
Main Authors: Yasuoka, Masaya, Goto, Naohisa
Format: Article
Language:English
Subjects:
Birth rate
Children & youth
Consumption
Economic Policy
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Expenditures
Fertility
Fiscal policy
Government
History of Economic Thought/Methodology
Income redistribution
Income taxes
Law and Economics
Neoliberalism
Older people
Quality of Life Research
Research Article
Social Policy
Social support
Society
Studies
Taxation
Use taxes
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Summary: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.
ISSN:1865-1704
1863-4613
DOI:10.1007/s12232-014-0200-1