The Effects of a Revenue-Neutral Child Subsidy Tax Mechanism on Growth and GHG Emissions

Abstract

Growing population, greenhouse gas emissions, and the pressure to improve economic growth are conflicting and controversial issues at the core of political economy. In this paper, using a theoretical model, we show that by shifting relative costs of child-rearing and costs for education, we can achieve a slowdown in population growth and greenhouse emissions, and an enhancement of economic growth. These goals are based on two fundamental considerations—the quantity–quality tradeoff with respect to the choice of the number, and the educational level of children. An analysis is presented using a standard overlapping generation (OLG) framework that is extended with human capital, endogenous fertility, and changing life expectancy. The environmental impact of economic activities is modeled using a modified IPAT framework. Our results show that it is possible to reduce the level of carbon emissions of the whole economy and to generate a Pareto improvement. Subsequently, an economic strategy is presented that is costless, has various advantages, and particularly useful for countries experiencing high fertility rate that are not sustainable.