Taxing Children: The Re-Distributive Role of Child Benefits - Revisited
48 Pages Posted: 6 Mar 2010
Date Written: February 2010
In this paper, we challenge the conventional wisdom that due to the negative correlation between family size and earning ability, family size can be used as a 'tagging' device, and calls for subsidizing children (via child allowances) to enhance egalitarian objectives. We show that the case for subsidizing children crucially hinges on child allowances being provided on a universal basis. Notably, when child benefits are means-tested, taxing children at the margin (namely, setting the total benefits to decline with the number of children) is socially optimal.
Keywords: child allowance, re-distribution, means-testing, universal, tagging, optimal taxation
JEL Classification: D60, H20, H50
Suggested Citation: Suggested Citation