The modest impact of Australia's baby bonus on fertility timing

The challenge of returning low-fertility countries to a higher-fertility state has become especially clear in recent years. As noted in this post, aside from the post-WWII Baby Boom, there have been no significant episodes of increasing fertility. And that's not for want of trying. Some governments have become increasingly generous over time in their attempts to encourage higher fertility. Others have flailed around looking for a solution. One notable example is the Australian 'baby bonus', which initially paid each mother a lump sum of $3000 for each child born after 30 June 2004. The amount was increased to $4000 in July 2006, then to $5000 in July 2008, before being reduced to $3000, and eventually removed (and replaced with changes to the Family Tax Benefit) in March 2014.

How (un)successful have policies like Australia's baby bonus been? This new article by Sarah Sinclair (RMIT University) and co-authors, published in the journal Economic Modelling (open access), takes an unusual approach to answering that question. Rather than identifying policies and then testing directly for whether fertility changes happened at those points in time, Sinclair et al. first use time series models to identify structural breaks in the time series of fertility for 31 maternal-age-by-birth-order series. A structural break occurs when the time trend for the series changes meaningfully at a particular point in time. Using their approach, Sinclair et al. look for points in time where many of the time series have meaningful changes. What they find is not much of anything, with:

...the clearest and most consistently identified turning points for second births, with breaks in 2005 and 2015 detected across dates that plausibly align with major changes in family transfer settings. Other shifts, such as in selected age groups and some higher-order births, are less robust, and we detect no structural break in the aggregate fertility rate.

The timing of the 2005 and 2015 changes is consistent with the timing of the major changes to the baby bonus (or, at least, consistent with nine months after the major changes to the baby bonus). However, notice that they found effects only for second births, and not for births overall (or the aggregate fertility rate). That suggests, as they conclude, that the baby bonus affected the tempo of fertility, but not fertility overall. In other words, women brought forward the birth of a second child as a result of the baby bonus, but did not have more children overall.

Of course, identifying structural breaks is not the same as estimating a causal policy effect, but the timing of the breaks provides suggestive evidence about whether policy changes may have mattered. However, one aspect of this paper in particular is kind of unusual. When Sinclair et al. outline the 2005 and 2015 structural breaks in second births, their results are shown in Figure 5 in the paper:

The grey line tracks the second birth rate each month, while the red line shows the overall trend. Notice that in the top panel of the figure, there is a clear change in the trend in 2005. The pre-2005 trend is downwards, and then there is a big jump upwards in the second birth rate in 2005, before it returns to its previous downward trend. The oddity occurs in the lower panel of the figure, where Sinclair et al. show a somewhat less downward sloping trend in the second birth rate up to 2015, before there is a big jump up, and then a much steeper decline. The second figure ignores that there was already a structural break in 2005, where the trend jumped upwards. It seems to suggest that the end of the baby bonus induced a big increase in second birth rate. Now, that could be true, if couples anticipated the removal of the baby bonus, and tried to have a baby before the bonus was removed. However, Sinclair et al. don't really discuss this.

A more interesting interpretation occurs if you squint at the top panel of Figure 5, and imagine one structural break in 2005, and then a second at 2015. In between those two years, the trend in the second birth rate might be mildly upwards. Of course, we don't know this for sure, as Sinclair et al. didn't test for multiple breaks in their time series. But perhaps their results overstate the case against the fertility impacts of the baby bonus. To be clear, these would still be impacts on the tempo of fertility, not on total fertility, but perhaps the baby bonus did have an enduring effect on bringing forward second births. This would be something for future researchers to follow up on.

Nevertheless, this research adds to the evidence that relatively generous cash payments like Australia's baby bonus are unlikely, on their own, to reverse declining total fertility rates. It is becoming abundantly clear that low fertility will be an enduring feature of future population change.

Read more:

• The pandemic 'baby bust' in other countries
• Cohort effects and the downturn in US fertility since the Great Recession
• The new economics of fertility
• The economics of the falling total fertility rate in New Zealand
• The economics of fertility in high-income countries
• Can fertility return to replacement levels?
• You can make future population decline disappear just by changing the way you categorise people and fertility

This week in research #126

Here's what caught my eye in research over the past week:

• Klebl, Jetten, and Kirkland (open access) find that citizens living in nations with greater (vs. lower) levels of economic inequality were more likely to attribute responsibility for climate change mitigation to individual people rather than to governments (and businesses)
• Andersen, Grimsrud, and Lindhjem find that residential property prices in Norway decline in proximity to operating wind farms, with prices lower by 4 to 14 percent for properties within 2 km of a wind farm, and with effects declining to zero by 7 km from a windfarm

Book revew: Abundance

In the corners of the Internet that I inhabit, one of the most talked about books over the past year was Abundance, by Ezra Klein and Derek Thompson. And now, I have finally finished reading it. The key theme of the book is, unsurprisingly, in its title. Klein and Thompson reject a world of scarcity, arguing that we should instead embrace a world of abundance. What does that mean? In their view, abundance is about "having enough of what we need to create lives better than what we have had", and the process of obtaining abundance is about building and inventing an abundant future.

The book is understandably US-centric, and most of the book is devoted to outlining the various ways that the US has lost its way. The consequences are seen in the housing crisis, climate change and energy, declining research productivity, and many other challenges that are not just apparent in the US, but appear as a constant theme across Western developed countries (as well as many other countries).

Klein and Thompson focus on the key bottlenecks that inhibit the progress towards abundance. One of the bottlenecks they highlight is group conflict and the collective action problem. In that, they highlight the work of the economist Mancur Olson, specifically his book The Rise and Decline of Nations. In that book, Olson wrote:

    ...if organizations and collusions for collective action usually emerge only in favorable circumstances and develop strength over time, a stable society will see more organization for collective action as time passes.

While collective action could be used to drive the economy towards abundance, so often it is used instead to prevent it. To me, this sounded very much like the problem in the theory of public choice around the optimal number of people to be involved in a decision (for example, see this post, where I describe the trade-off between external costs and decision-making costs). The greater the number of people who must agree with a decision, the greater are the decision-making costs. And collective action, which by definition increases the number of people involved in decision-making, can increase costs and paralyse the decision-making process.

The book is written in an easy-to-read style. Those who are familiar with Klein's columns in the New York Times or Thompson's articles in The Atlantic will recognise this. There are also some funny moments, such as one bit on whether it is government inefficiency that means that it is expensive to dig tunnels in the US. Klein and Thompson list other countries with lower costs of tunnelling, then say:

We looked into it, and it turns out that all those countries also have governments.

Indeed, they do. Government doesn’t inherently make infrastructure construction more costly. The problem lies instead in particular ways that government works (or doesn't).

The most disappointing aspect of the book is that Klein and Thompson spend over 200 pages outlining the problems and making the case for abundance, but then they are short on solutions. They wave away that criticism by noting that:

It is easy to unfurl a policy wish list. But what is ultimately at stake here are our values.

That may be so, but perhaps one concrete solution as a starting point would have been good. Maybe a specific example where permitting reform has been successful in raising housing supply and alleviating high housing costs, or where changes in research and development funding have meaningfully improved innovation. Despite the lack of specific solutions, they do highlight the existence of trade-offs, which is refreshing given that other books have unrealistically utopic views of what can be achieved in the face of big challenges. However, there are some clear blind spots, one of which is a failure to engage meaningfully with the arguments for de-growth. While I don't place a lot of stock in de-growth arguments, that doesn't mean that they don't garner a lot of attention. Even if de-growth is ultimately unpersuasive, a book making the normative case for abundance should probably explain why abundance is preferable to sufficiency, restraint, or reduced consumption.

This book has been a bit of a rallying cry for sections of the left since it was published. It is definitely worth reading in order to better understand the problems and their underlying causes. It is also helpful to think about how we might do better in the future. It is just unfortunate that Klein and Thompson leave us hanging, and wondering what to do next.

Try this: The Mother of Econ

US high school student Saras Tolley has created a collection of AI-powered economics tools called The Mother of Econ. The tools include a 'shock simulator', which takes any news headline and determines what the supply and demand effects are, an 'econ paper decoder', which takes any NBER working paper, or journal article in the Journal of Economic Perspectives or American Economic Review, and creates a plain English summary, and ten other tools.

I put the 'shock simulator' through its paces. After all, if an AI can evaluate the economic implications of a news article using supply and demand, what will I do on this blog? Just kidding, there is lots that I could do. But nevertheless, the results were uneven. Faced with the news headline that I blogged about here, the shock simulator correctly drew a demand increase. However, when presented with the news headline that I blogged about here, it drew a supply decrease rather than a demand increase. So, I guess there is still a little more work required before my supply-and-demand blogging is replaced by AI!

Some of the other tools are really good to play with, including the 'shadow Fed', which applies the Taylor rule to determine what the US fed should do with interest rates and tracks that against actual Fed behaviour. There's also a 'US econ dashboard', which tracks economic statistics by state, and allows you to drill down to the county level (but only for some states, and only for some counties within states that have data - I was disappointed to find data on only six counties in New York, for instance).

Nevertheless, this is an interesting collection of tools, all powered by Gemini, and available for you to use at no (monetary) cost. Enjoy!

[HT: Marginal Revolution]