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Income Risk, the Tax‐benefit System and the Demand for Children

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  • Clive D. Fraser

Abstract

Because children represent an irreversible commitment, parents might hedge against higher income risk by having fewer children. We show that, under plausible assumptions, recent increases in income risk might have reduced prudent parents’ desired fertility. Responses to this via the tax‐benefit system are considered. Introducing an expected revenue‐neutral transfer‐cum‐child‐benefit system under proportional taxation, which lets the government share the household’s income risk, increases desired fertility for parents who would choose to have small families in this system’s absence. Pound for pound, the targeted child benefit enhances fertility more than the lump‐sum transfer.

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  • Clive D. Fraser, 2001. "Income Risk, the Tax‐benefit System and the Demand for Children," Economica, London School of Economics and Political Science, vol. 68(269), pages 105-126, February.
    • Handle: RePEc:bla:econom:v:68:y:2001:i:269:p:105-126
    DOI: 10.1111/1468-0335.00236
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    Cited by:

    1. Fraser, Clive D., 2021. "Protection in numbers? Self-protection as a local public good," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    2. Masao Nakagawa & Asuka Oura & Yoshiaki Sugimoto, 2022. "Under- and over-investment in education: the role of locked-in fertility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 35(2), pages 755-784, April.

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