May 2009
Given that young children are under the control of their parents, if the government has an interest in either the welfare or the productivity of the former, it has no option but to act through the latter. Parents are, in the ordinary sense of the word, the government’s agents. They are agents also in the sense of Principal-Agent theory if the parental action of concern to the government is private information. This throws doubt on some established optimal-taxation results, and gives rise to some new ones.
Keywords: optimal taxation, optimal family allowances, hidden ability to raise children, hidden educational investments, endogenous and exogenous fertility
JEL Classification: [D130] Household Production and Intrahouse Allocation [D820] Asymmetric and Private Information [H240] Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes [H310] Fiscal Policies and Behavior of Economic Agents : Household [J130] Fertility; Family Planning; Child Care; Children; Youth [J240] Human Capital; Skills; Occupational Choice; Labor Productivity
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Alessandro Cigno cigno@unifi.it
