Cost of Children,Parental Decisions,and Family Policy

ABSTRACT: The aims and means of family policy are examined in the light of standard economic theory, and of the microeconomics of fertility. It is shown that compensating parents for the cost of having children is unjustified, and that such a cost is not captured by the methods commonly used to estimate it anyway. On the other hand, a family policy may be justified if fertility or parental expenditures on children are‘'too small'’(or‘'too large”) as a result of externalities or market incompleteness; if some couples are physically rationed in their fertility decisions; or in order to relieve poverty. Manipulating taxes on parental earnings and child-specific goods is generally preferable to changing child benefits rates.