Borja Petit, Intergenerational Effects of Child-Related Tax Benefits in the US
Job talk. Borja Petit is a PhD candidate at CEMFI. He will present a paper entitled "Intergenerational Effects of Child-Related Tax Benefits in the US".
Photo: Borja Petit.
The presence of children in US households reduces tax liabilities through deductions and tax credits. Through the lens of the quantity-quality trade-off, these benefits distort parental choices over the number and human capital of children by altering their relative implicit price. This paper quantifies the effects of child-related tax benets on fertility and intergenerational mobility using a general equilibrium life-cycle model with endogenous fertility choices and parental investments in children's human capital, calibrated to US data. I show that tax benefits increase fertility by 16%, but they do so at the expense of lowering human capital of children. More importantly, these effects are particularly strong among low educated mothers, which widens the gap in human capital between children of low and high educated mothers. As a result, the intergenerational persistence of education increases by 37% when tax benefits are introduced. I also show that education subsidies are also effective at fostering fertility but, as opposed to tax benefits, they do not decrease children's human capital, nor intergenerational mobility.
Host: Kjetil Storesletten