The Economic Boost of Childbearing

When American parents take on the burden of bearing and rearing a child, they deliver a huge dividend to society. So concludes a team of economists from Berkeley and Syracuse universities intent on assessing “the net fiscal externality to being a parent.”

Through careful economic accounting, the researchers assess, on the one hand, the costs a couple incurs as a consequence of becoming parents and the costs society at large incurs through their parenthood and, on the other hand, the economic benefits realized by the couple and by society because of their parenthood. These complex calculations yield the researchers’ “central finding”—namely, that each child parents raise constitutes a net benefit to society amounting to $217,000 in 2009 dollars. In the rather opaque language of economics, “the net fiscal externality of becoming a parent is [thus] positive and substantial.” Elaborating on this finding, in the same almost impenetrable jargon, the researchers assert: “Becoming a parent is tantamount to providing society with a non-depreciating capital asset that generates an annual flow of revenues, in perpetuity, such that the present value of the asset (at an interest rate of 3 percent) is $217,000.” Clearly, there are “substantial public benefits to childbearing.”

The Berkeley and Syracuse scholars recognize that analysis “could contribute to policy debates.” In particular, they note that their analysis may compel rethinking of how “public-sector transfer programs” can so divert the financial benefits of having children from parents themselves to society at large that it “distorts the incentives guiding individual fertility choices, perhaps leading to a suboptimal level of childbearing.” Clarifying what they mean by “suboptimal” childbearing, the researchers note, “Although overall fertility has remained fairly constant in the U.S. since the early 1980s, the prevalence of biological childlessness among women who have reached the upper limit of childbearing age has risen since 1975, and by 2008 it was nearly 18 percent.”

Such childlessness is understandable in an economy in which “the private costs of raising children are high.” And since parents’ childrearing activities produce a substantial fiscal dividend for society as a whole,” the researchers plausibly reason that perhaps it is time for “adjustments in taxes or subsidies [that] could internalize these social spillovers and move fertility closer to its social optimum.”

Such adjustments may come as more Americans realize that married couples are delivering a huge benefit to society by rearing children and as they recognize that under current policies, “parents pay too much in taxes or, equivalently, bear too large a share of the total costs of raising children.” Rectifying the public injustice to parents might mean that “nonparents should pay a surtax or otherwise increase their contribution to the public budget.”

To illustrate the political implications of their calculations, the researchers cite a 2001 case in Germany in which that country’s highest court ruled that “it was unconstitutional to tax parents and the childless at the same rate . . . [because] parents, through their childbearing, produce the future workers needed to keep the [nation’s public] insurance system solvent while the childless do not.”

Given the projected insolvency threatening our own country’s Social Security and Medicare programs, the researchers have very good reason to suggest that as American policymakers try to deal with “the long-term fiscal imbalances resulting from an aging population,” they may learn something from Germany’s high court.

(Douglas A. Wolf et al., “Fiscal Externalities of Becoming a Parent,” Population and Development Review 37.2 [June 2011]: 241–66.)