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In 1988, Quebec introduced the Allowance for Newborn Children, a pro-natalist child benefit that paid up to $8,000 to a family after the birth of a child. Was the program successful? It achieved its goal of increasing family size, but only at a high cost per additional birth. Each child who would not have been born in the absence of the incentive cost the public purse more than $15,000. The main policy lesson from this episode is that, even if the response to an incentive policy is strong, the effective cost per desired result may be very high.
Fertility rates across the countries of the Organisation for Economic Co-operation and Development (OECD) have declined sharply since the 1960s. This decrease raises public policy concerns because the funding of many social programs, such as public pensions and health care, relies on transfers across generations. Elderly citizens receive benefits funded by younger workers, who, in turn, expect to be supported in their retirement by the next generation of taxpayers. As successive generations shrink in size, these fiscal arrangements come under pressure. In addition, some people fear that dwindling populations may threaten the vitality of various cultures whose survival depends on a critical mass of participants.
These concerns have led governments to create tax and transfer policies aimed at influencing family decisions as intimate as those surrounding fertility. Of the 29 OECD countries, 26 give families with children special treatment through the tax and transfer system (OECD 2000).
In more than half of OECD countries, per child tax benefits increase with the number of children in the family. (superscript 1) This policy structure implies that the policymakers' goal is to directly influence families' fertility decisions. If the goal were simply to compensate families for the extra costs of having children, the incremental benefit would shrink as the number of children grew. The more children a family has, the more people there are to spread household expenses over and, hence, the incremental cost per child. (superscript 2) Thus, an increasing per child benefit suggests that pro-natalist tax policy is on the minds of policymakers - as in Quebec through most of the 1990s.
Quebec's Baby Bonus: The Allowance for Newborn Children
In its May 1988 budget, the Quebec...