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Who should pay an insurance premium for equality of the newborn’s opportunity?

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  • Furukawa, Yosuke

Abstract

In this paper, we develop a three-period model that incorporates parents’ heterogeneous skills and social preferences. Our study shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. We obtain an unacceptable outcome for the current generation. That is, a high planner’s weighting on the newborn’s welfare makes the optimal capital income tax rate more regressive. In addition, the total tax burden of the highest-productivity parent is decreasing with the planner’s weight. Thus, a low-productivity parent incurs a larger share of parents’ welfare loss. This result follows from the trade-off between incentives for high-productivity parents and insurance for the newborn child.

Suggested Citation

  • Furukawa, Yosuke, 2017. "Who should pay an insurance premium for equality of the newborn’s opportunity?," Economic Analysis and Policy, Elsevier, vol. 54(C), pages 1-14.
    • Handle: RePEc:eee:ecanpo:v:54:y:2017:i:c:p:1-14
    DOI: 10.1016/j.eap.2017.01.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Inter-generational inequality; Intra-generational inequality; Optimal taxation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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