Saturday, July 28, 2007

How should a government respond to a declining Birth Rate.

  1. Do Nothing. Declining population has many benefits: Less congestion, less pollution, better for the environment. Also, it can be argued, the birth-rate is not the problem of the government anyway. It is an individual issue.
  2. Subsidies to have more children. In Germany and Italy the governments have flirted with the idea of economic incentives for couples to have more children. However, given the huge cost of bringing up children. Is there anything the government can do to change people's preferences? Basically, the demand for children in very price inelastic. A small subsidy is unlikely to make much differences to people’s preferences.
  3. Make People work longer. If you have a growing % of people entitled to pensions, this creates a real fiscal problem. The solution is to raise the retirement age. If people are living longer, why shouldn’t they work longer? The alternative of higher taxes could create serious disincentives in the economy.
  4. Encourage Immigration. Falling birth-rates are a problem in affluent western economies. It is precisely these countries that are the ideal place for many seeking to avoid poverty and repression in developing countries. Immigration could easily fill the labour shortages. Some may argue it depends on the type of immigrants. E.g. English speaking skills, age of immigrants, Qualifications.

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