4 In recent years the child tax credit has been increased in

4. *In recent years, the child tax credit has been increased in the United States. According to the basic principles of econom- ics, how will the birthrate be affected by policies that reduce the taxes imposed on those with children?

Solution

Question 4

According to the basic principles of economics, people respond to incentives.

Incentives affect the behavior of individuals.

In given case, it has been stated that the child tax credit has been increasing in the United States in recent years.

This implies that number of children one have tends to impact the person\'s tax liability. Higher the number of children, greater will be the reduction in taxes.

So, this reduction in taxes imposed on those with children create an incentive to have more children as this can help in lowering the tax liability of a person.

As people will have more children, birth rate will rise.

So, the birth rate will increase due to policies that reduce the taxes imposed on those with children.