The visible hand in economics

Poll tax on kids

Posted on: December 11, 2007

Sticking to the recent theme of externality taxes, some researchers from Perth suggested that Australians should ‘fine’ parents for each kid they have above two. Now we know I’m a big fan of externality taxes, but I’m not too sure about this one.

As we have already established a carbon trading scheme, this externality tax is not being used to cover carbon creation from the consumption or production of certain goods – the kids will pay for all of this when they grow up. This leaves us with the carbon emissions that the child makes from living, by doing things such as breathing.

Now, a poll tax of this kind will not lead to any reduction on the amount of breathing people are doing, but it may lead to a reduction in the number of people that are breathing (by reducing births, or starving people to death).  If this is indeed the goal, then why are we only taxing from the third child, we should tax each child as they impose an approximately equal externality on society.

However, this isn’t the whole issue.  The issue is, what is the externality from having one additional person in the world, is it positive or is it negative?  Sure the carbon component is a negative, but their quirky sense of humor and loving smile is a positive externality.  Currently in Australia they subsidise children, in fact there was a push to increase the number of children being born in Aussie.  What the Aussies need to do is work out the size of the positive (negative) externality associated with another child and subsidise (tax) based on that.

The researchers are treating making babies as a consumption decision, and then looking at one of the negative externalities associated with this decision.  The decision to subsidise or tax a given consumption decision should depend on whether is has a net positive or negative externality, not solely on one of the costs associated with the choice.

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