nep-pub New Economics Papers
on Public Finance
Issue of 2005‒02‒27
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Fertility and Social Security By Michele Boldrin; Mariacristina De Nardi; Larry E. Jones
  2. How Fiscal Decentralization Flattens Progressive Taxes By Kurt Schmidheiny

  1. By: Michele Boldrin; Mariacristina De Nardi; Larry E. Jones
    Abstract: The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility, the one by Barro and Becker (1989), and the one inspired by Caldwell and developed by Boldrin and Jones (2002). In the Barro and Becker model parents have children because they perceive their children's lives as a continuation of their own. In the Boldrin and Jones' framework parents procreate because the children care about their old parents' utility, and thus provide them with old age transfers. The effect of increases in government provided pensions on fertility in the Barro and Becker model is very small, and inconsistent with the empirical findings. The effect on fertility in the Boldrin and Jones model is sizeable and accounts for between 55 and 65% of the observed Europe-US fertility differences both across countries and across time and over 80% of the observed variation seen in a broad cross-section of countries. Another key factor affecting fertility the Boldrin and Jones model is the access to capital markets, which can account for the other half of the observed change in fertility in developed countries over the last 70 years.
    JEL: E10 J10 J13 O10
    Date: 2005–02
  2. By: Kurt Schmidheiny
    Abstract: We study the tension between fiscal decentralization and progressive taxation. We present a multi-community model in which the local income tax rate is determined by an exogenous progressive tax schedule and a tax shifter that can differ across communities. The progressivity of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. Rich households are more likely to locate themselves in low tax communities than poor households. The actual tax structure is thus less progressive than the exogenous tax schedule. To investigate the quantitative implications of our model, we calibrate a fully-specified version to the largest metropolitan area in Switzerland. The equilibrium values of the simulation show the same pattern across communities as we observe in this area. The theoretical result is challenged by estimating the actual tax structure faced by the households in this area. We find that the actual tax structure is indeed substantially less progressive than the fixed tax schedule.
    Keywords: Progressive Taxation, Fiscal Decentralization, Income Segregation

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