In this paper, we reexamine the commonly invoked argument that due to the existence of a negative correlation between earning ability and family size, the latter can be used as a “tagging” device, justifying subsidizing children (via provision of child allowances) to enhance egalitarian objectives. Employing a benchmark setting where the quality–quantity paradigm holds, we show that the case for subsidizing children is far from being a forgone conclusion. We demonstrate that the desirability of subsidizing children crucially hinges on whether benefits are means-tested or are offered on a universal basis.
- Child allowance
- Optimal taxation