The Tax Treatment of Children When Parents Act Non-cooperatively: A Preliminary Account

In this brief final chapter we will investigate, once again, the question of whether children should be a tax asset or a tax liability to their parents, in a context however where the parents act non-cooperatively. This is a novelty, to the best of our knowledge—the literature, as we saw, either focuses on the interaction of the members of a couple when decisions concerning home-production (typically of a household public good) must be taken, or on the fertility behaviour under the assumption that they act unitarily. This is of course a reasonable modelling strategy; still, it is interesting to see what happens when the two perspectives are merged. Here we provide a first, tentative answer, and ponder on the difficulties of finding an appropriate way of representing the situation in a way which is both manageable and not too far-fetched with respect to the main stylised facts relative to marriage and fertility. We start with a model in which fertility is endogenous and the consider briefly the possibility of extending the results to a model of endogenous fertility. We find that the case for subsidising children is not clear-cut, even with exogenous fertility, due to the non-cooperative behaviour of the parents.