The Corner

Subsidizing Parents

Robert, sadly the link to the 1997 report is subscriber-only, but judging from the other piece to which you link, I suspect that we are not looking at the whole picture here. In deciding the economic costs and benefits of subsidizing parenthood (the societal costs and benefits are an entirely different topic), we surely need to look beyond the social security balance sheet. It’s the broader public purse that counts, and there the equation rapidly becomes very complicated indeed. How for example do we account for the capital costs (all those extra schools, roads and so on) that come with a larger population, let alone their running costs? Or, to take another interesting topic, do the economics of subsidizing a third child differ from a second? The questions are endless…

 

In any event, if we are looking at the economics of all this, the real issue is not some (imagined) lack of children, but our failure to make the best use of the productive capacity of the people that are here already. There are numerous examples of what could be done. To take just two: (1) Provide better child care facilities and more mothers will feel able to work (or work full-time). They will thus be more likely to pay more into the tax base (natalists should take comfort from European evidence suggesting that the increased availability of affordable child care may increase the birth rate). (2) At the other end of life, we should push out the retirement age (with appropriate exceptions for the sick and those in physically demanding work) far more rapidly than is currently being discussed. Waiting until 2075 before raising it to 69 makes little sense. 2075!

 

Another element in all this, of course, ought to be far more encouragement of people to save for themselves. A substantial shift from direct to indirect taxation would help, as would the indexation of capital gains, but the commission has relatively little to say on this topic. What it does recommend, however, is a reduction in social security payments for the better off (at the same time as these unfortunate fortunate are being asked to pay in more to the system). As disincentives to save go, that takes some beating. Remarkable.

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