This is a definite no-no, especially in a pure-bred dog. Genes in a baby (dog/human/whatever) come 50% from the father, 50% from the mother. When you mate a father to one of his daughters, their children will be 75% from the original father. The major problem with this is that genetic traits are much more likely to occur - this is why purebred dogs are much more likely to have genetic disorders (like luxating patella), since there is a common ancestor that is relatively recent. If you would like a more in-depth discussion, look up "recessive alleles" on wikipedia, but in short, it's a very bad idea.
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