In this paper, we challenge the conventional wisdom that due to the negative correlation between family size and earning ability, family size can be used as a
'tagging' device, so that subsidizing children (via child allowances) enhances egalitarian objectives. We show that the case for subsidizing children crucially hinges
on child allowances being provided on a universal basis. Notably, when child benefits are means-tested, taxing children at the margin (namely, setting total child benefits to decline with the number of children) is optimal under a broad class of egalitarian objectives. |
