Child Support and Involuntary Unemployment

Abstract

This research was conducted concerning the effects of child support. Many earlier studies have assumed full employment. However, unemployment exists in the real economy. Our investigation examined the relation between the number of children in the economy and the unemployment rate. In this paper, the overlapping generation model with involuntary unemployment was used because wages were set by labor unions. First, in the analytical research, it was found that wage taxes for child support and unemployment insurance both led to increased unemployment and that the wage tax for child support decreased equilibrium capital stock. Also, the wage tax for unemployment insurance led to a reduction in the number of children in the economy. Second, a simulation was conducted which revealed that there is a tax rate at which the number of the children is maximized. At tax rates for child support higher than this maximum, any increase in the tax rate for child support triggers a decrease in the number of the children! The conclusion showed that tax rates for child support that are too high have a diminishing effect and policy makers should consider the effects of the wage tax for child support and unemployment.