Full Citation

Title: OPTIMAL TAXATION OF FAMILIES: Mirrlees meets Becker

Citation Type: Miscellaneous

Publication Year: 2018

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Abstract: This paper examines the optimal taxation of families in an environment in which (i) families earning abilities and tastes for children are families private information, and (ii) child-rearing requires both parental time and goods. Potential parents simultaneously decide labor income and number of children and a government uses information on family income and size to construct an optimal tax system: a combination of an income tax schedule with child tax credits. The optimal child tax credits are distinctly affected by the parental time and cost of goods involved in child-rearing. In the quantitative part, I calibrate my model to the US data and show that child-rearing costs translate into a pattern of optimal credits that is U-shaped in income. In particular, the credits to families are decreasing over the first half of the income distribution. In addition, the credits are decreasing by family size owing to economies of scale in the impact of child-rearing costs on family welfare. For median-income families, the credit for the second (third) child equals 28% (2%) of the credit for the first (second) child.

Url: https://www.andrew.cmu.edu/user/mkurnaz/OTF.pdf

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Authors: Kurnaz, Musab

Publisher: Tepper School of Business, Carnegie Mellon University

Data Collections: IPUMS CPS

Topics: Family and Marriage, Other

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