the children born to a couple are random variables with probability distributions conditional on unobservable parental … actions. Potential parents take their decisions without taking into account the effects of these actions on the government …'s future tax revenue. The second-best policy provides parents with credit and insurance, and allows them to appropriate the …

We consider a case where some of the parents have higher ability to raise children than others. First-best policy gives … induces more able parents to have the first-best number of children, and to invest in each child at the first-best level. Less … able parents are induced to have fewer children than in first best, and will underinvest in each child. Whether the …