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Optimal Taxation of Families: Mirrlees Meets Becker

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  • Musab Kurnaz

Abstract

This paper studies optimal taxation of families—a combination of an income tax schedule and child tax credits. Child-rearing requires both goods and parental time, which distinctly impact the design of optimal child tax credits. In the quantitative analysis, I calibrate my model to the US economy and show that the optimal child tax credits are U-shaped in income and decrease with family size. In particular, the optimal credits decrease in the first nine deciles of the income distribution and then increase thereafter. Implementing the optimum yields large welfare gains.

Suggested Citation

  • Musab Kurnaz, 2021. "Optimal Taxation of Families: Mirrlees Meets Becker," The Economic Journal, Royal Economic Society, vol. 131(639), pages 2984-3011.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:639:p:2984-3011.
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    Cited by:

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    2. Komada, Oliwia, 2024. "Raising America’s future: Search for optimal child-related transfers," Economic Modelling, Elsevier, vol. 138(C).
    3. Musab Kurnaz & Terry A. Yip, 2022. "The Canadian income taxation: Statistical analysis and parametric estimates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 272-311, February.
    4. Oliwia Komada, 2023. "Raising America's future: search for optimal child-related transfers," GRAPE Working Papers 84, GRAPE Group for Research in Applied Economics.

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