- According to the UN, the share of countries with explicitly pro-natal policies has risen from 10% in 1976 to 15% in 2001 and to 28% in 2015. Tweet This
- Any pro-natal policy agenda will have to be about more than just a child tax credit. It’s vital that policymakers also think about removing obstacles to marriage, facilitating access to decent housing, and accelerating education completion. Tweet This
- Poland’s pro-natal policy is a generous, nearly-universal cash benefit that provides a major support for many families, and it’s working, while Hungary’s limited, hyper-targeted approach based on loans and other financial gimmicks is failing. Tweet This
America’s birth rate has fallen to its lowest level in history. If current birth-odds by age remain stable at their 2018 levels, then the average American woman will only end up having about 1.72 children, slightly lower even than the previous low of 1.73 in 1978. This simple forecast of births is called the total fertility rate (TFR), and it is a common tool for tracking how births are changing over time.
But birth rates aren’t remaining stable: early data for 2019 suggest that birth rates may have fallen a bit further to around 1.71 children per woman. And while current birth rates can always change, historically, the TFR in America has been an extremely reliable predictor of lifetime completed fertility. To show this in the figure below, estimated TFRs in a given year are lined up against the actual, eventual number of children ever had by women who were age 25 in that year (or near peak childbearing years).
Thus, while it’s possible that fertility declines could be offset, the now-decade-long trend of fertility decline since 2007 is very likely to result in smaller American families in the long run. The economic consequences of low fertility are numerous, as I’ve described in detail elsewhere.
The United States is not alone in experiencing a sharp decline in birth rates. South Korea’s total fertility rate has fallen by 25% in just 5 years, and Finland’s rate has fallen 20 percent. While it is not accurate to say that fertility is declining everywhere, the current baby bust does appear to be shared across most developed countries.
Pro-Natalism On the Rise
This current slump is recent. But as more countries have begun to experience the economic and political challenges associated with low fertility, a growing number have begun to adopt formal pro-natal policies designed to increase birth rates. United Nations data tracking population policies since 1976 show that the share of countries with explicitly pro-natal policies has risen from 10% in 1976, to 15% in 2001, to 28% in 2015, the most recently available data.
Since 2015, more countries have adopted pro-natal policies. There is no systematic accounting of specific pro-natal initiatives around the world, but recent years have seen dramatic expansions in pro-birth policies in Hungary, Poland, Greece, Korea, Japan, Finland, Latvia, and others.
These policies are greatly debated. For example, I have argued that Hungary’s much-heralded pro-natal policies are actually Potemkin: they look nice on the outside, but don’t actually help families much. Meanwhile, Poland’s huge expansion of child allowances has been panned as a failure.
Because Poland and Hungary are the most prominent current examples of large-scale public efforts to boost the birth rate, it’s worthwhile to assess whether either policy has worked. The graph below presents the rolling percent change in crude birth rates over the previous 12 months in Poland and Hungary, with bars for when each country launched its distinctive pro-natal policies (CSOK in Hungary and 500+ program in Poland).
Hungary’s CSOK program might have nudged births up slightly, but it’s more plausible that it made no difference at all. Meanwhile, Poland’s birth rates rose dramatically after the 500+ program was implemented, and while there are declining now, they remain elevated compared to before the reform.
There’s more reason to think Hungary’s policies have failed while Poland’s are working. CSOK was designed to heavily encourage families to have a 3rd or higher parity child, and yet the share of Hungarian babies who are third parity or higher has actually fallen since CSOK was implemented. Meanwhile, Poland’s policies targeted second-or-higher-parity children, and Poland’s increase in births in 2017 does seem to have coincided with a large increase in higher-parity births (note that in 2019, Poland expanded the 500+ program to include firstborn children).
Poland’s pro-natal policy is a generous and now nearly-universal cash benefit that provides a major support for many families, and so, unsurprisingly, it’s working, while Hungary’s limited, hyper-targeted approach based on loans and other financial gimmicks is failing.
Would Pro-Natalism Work in America?
Case studies like those in Poland and Hungary are interesting, but not conclusive. To really know whether pro-natal policies work, formal academic studies of numerous policy changes must be consulted. Using estimates of how sensitive birth rates are to pro-natal incentives, it’s possible to estimate the effect of various recent or proposed policies in America (a link to a detailed description of the academic literature and a list of academic papers is provided in the Appendix at the end of this article).
Here, I consider three different policy regimes for child benefits: tax provisions as of 2017, changes from the Tax Cuts and Jobs Act (TCJA), and changes that would be enacted under the proposed Bennet-Romney version of the American Family Act. The figure below shows the present value of child benefits in the tax code under these three policies. Benefits included are the personal exemption (pre-TCJA), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), and Bennet-Romney’s proposed Young Child Tax Credit (YCTC).1 For simplicity, I calculate benefits as they would be experienced in a married household with one child filing taxes jointly.
As can be seen, there have been considerable changes to child benefits under TCJA, and the Bennet-Romney plan would make those changes even bigger. Before TCJA, many wealthy families enjoyed a meaningful tax benefit to have children in the form of the personal exemption. Its repeal wiped out a large tax benefit to richer families.
On the other hand, the choice to make the CTC and ACTC larger and more refundable greatly increased pro-natal benefits to married families with under $200,000 in income. Bennet-Romney’s proposal would take this change and ratchet it up further, making more refundable credits available to the very poorest, and increasing the size of the credit available to the middle class.
Representing all of these changes as a percent of income is challenging, especially since Bennet-Romney would provide benefits to individuals with extremely low incomes, producing absurd estimates of pro-natal benefits as a percent of income. For simplicity, then, we can ask what the typical woman would experience. According to the 2018 American Community Survey data, the median household income for married women ages 15 to 50 was about $90,000, while for unmarried women it was $43,000. I calculate the level of benefit for each of these households compared to their incomes and take the average of the two as a reasonable estimate of the typical family’s experience of the three policy regimes under consideration. Thus, for the typical family, the present value of pre-TCJA child benefits for a first child amounted to about 26% of household income, while TCJA benefits come to about 39% of income, and benefits under the Bennet-Romney plan would be about 43% of income.
Using the elasticities of fertility with respect to pro-natal incentives provided by the economic literature, we can estimate what birth rates in 2018 and 2019 might have been if Bennet-Romney had been in force, or if the TCJA had not passed and pre-2017 child benefits remained in force. Obviously, this estimate contains some error, including because I cannot access full fertility-by-income-range data from the IRS. But it can help illuminate what kind of effect pro-natal policies might have.
TCJA changed the typical family’s benefit experience by more than Bennet-Romney would have changed it. Including error margins for uncertainty around effects, it’s not entirely clear if TCJA was large enough to imply any definite increase in fertility, but it might have prevented as much as a 0.09 child decline in TFR.
Had a proposal like Bennet-Romney been implemented instead of TCJA, fertility might have been a bit higher, but not by a lot. At the high end, using the most optimistic assumptions, implementing Bennet-Romney could have boosted fertility in 2019 by about 0.04 children per woman. This is nothing to sneeze at, as it implies tens of thousands of additional births. But it is perhaps less impressive than some pro-natally-inclined policymakers may envision. The fact that spending billions of dollars greatly reducing child poverty through direct transfers would only yield, at the extreme upper limit, about 0.04 children per woman in increased birth rates is disappointing. Especially for very-low-fertility countries like Hungary and Poland, boosting birth rates by this amount doesn’t even come close to achieving their demographic goals. And that’s making a very generous assumption about effect sizes: under more plausible effect-size estimates, Bennet-Romney’s effects are much smaller.
At the extreme, we can calculate how large of a program would be necessary to lift American birth rates to replacement-rate around 2.07 children born per woman. In 2020, the total fertility rate is probably around 1.71 children per woman. Thus, to reach 2.07, we would need a 21% increase in birth rates. To accomplish this, we would need the present value of child benefits to increase by somewhere between 52% and 400% of household income. For the median woman, this would mean providing a child benefit for the first 18 years of a child’s life worth approximately $5,300 per year in addition to currently-provided benefits, with the range running from $2,800 more per year to $23,000 more per year. This would require a budgetary commitment many times greater than that envisioned by the Bennet-Romney proposal.
Money Works, But It’s Not Enough
Pro-natal incentives do work: more money does yield more babies. Anybody saying otherwise is mischaracterizing the research. But it takes a lot of money. Truth be told, trying to boost birth rates to replacement rate purely through cash incentives is prohibitively costly. One of the most generous proposals, the Bennet-Romney bill, would have only a small effect on fertility. This compromise proposal is much smaller than Bennet’s earlier proposal, the American Family Act, of which I was supportive.
This doesn’t mean policymakers shouldn’t expand child benefits, which have many purposes, including reducing child poverty. It simply means that any pro-natal policy agenda will have to be about more than just a child tax credit. It’s vital that policymakers also think about how they can remove obstacles to marriage, facilitate access to decent housing, and accelerate completion of education—all vital elements in the modern economic life cycle leading up to childbearing. Without such a broad approach, pro-natal efforts will involve spending a great deal of money without a lot of results to show for it.
Lyman Stone is a Research Fellow at the Institute for Family Studies, and an Adjunct Fellow at the American Enterprise Institute.
Appendix: Academic Research on Pro-Natal Policies
I have identified 34 academic studies since 2000, with the vast majority published since 2005, assessing the effectiveness of specific pro-natal policies. Of those studies, 22 contain sufficiently detailed estimates of effects and have sufficiently quantifiable costs, so that they can be used to estimate plausible elasticities of fertility with respect to various pro-natal incentives. The studies are listed in an appendix linked here. However, the summary finding is simple: an increase in the present value of child benefits equal to 10% of a household’s income can be expected to produce between 0.5% and 4.1% higher birth rates. The figure below presents 26 different elasticity estimates from the 22 studies with enough data to produce such an estimate.
There is considerable disagreement across studies about the effectiveness of pro-natal policies. For example, studies of baby bonus programs in Quebec and Australia, in particular, have tended to turn up quite large effect sizes. However, a large study of “first-year benefits” around the OECD, mostly composed of maternity pay but also including baby bonuses, turned up an extremely small effect.
But, while there is disagreement about the size effects, the directional finding that pro-natal benefits boost fertility is nearly uniform: only a small number of studies fail to find a significant effect. All studies assess short-term fertility effects, but a few studies also look at long-run fertility effects. Long-run effects are almost always smaller than short-run effects because some of the short-run effects are just a change in the timing of births. Some studies even find that there are no long-run effects at all; but most do identify some effect, albeit smaller than the estimates presented here.
1. Present values matter because some benefits differ in both face value and duration: the YCTC is only available while children are young, for example. Using the present value helps equalize across this kind of difference and shows the kind of financial consideration really facing families.