Are the social security benefits of pensions or child-care policies best financed by a consumption tax?

Abstract

Our paper sets an endogenous fertility model and examines how tax revenues derived from a consumption tax should be used for social security benefits such as pension and child-care policies. An additional pension financed by a consumption tax can achieve Pareto-improving allocations. Child allowances and an education subsidy decrease the older generation's utility because of tax burdens and the lack of additional benefit. Even if child allowances can raise the share of young people in society and some future generation's utility, that future generation's utility decreases because of a decrease in income growth. However, with certain parametric conditions, an education subsidy can raise every generation's utility, except for that of the older generation, because of the increase in income growth.JEL Classification: H55, I20, J13, H20