WILL BABY BONUS ACTUALLY RESULT IN POPULATION GROWTH?
But will such policies actually result in population growth? After all, the government may end up making a lot of payments to families which would have had children anyway.
Imagine that, after putting the policy into practice, only one-tenth of the kids born were induced by the subsidy. In that case, in expected-value terms, the two years’ investment of per-capita income yields only one-tenth of the calculation presented above – that is, 4.5 years of additional tax receipts. Given that those receipts are discounted for a rather distant future, and perhaps constitute only about a third of income, in fiscal terms this is not a profitable deal.
You still might think it is worth spending money to increase the number of Korean babies. After all, people in prosperous countries are on average happy, and that is worthwhile in itself, quite aside from their contribution to the public till.
Still, if addressing public budget imbalances is one of the motivations for this policy, it could make fiscal problems worse.
Unfortunately, it’s impossible to say how much impact the Korean subsidies would have, as there is no precedent.
The closest would be Hungary’s subsidies to childbearing, including income-tax exemptions and amounting to about 5 per cent of gross domestic product. These policies were instituted only a few years ago, but there is some evidence of rising fertility rates in Hungary, albeit at 1.6 still well below replacement.
