In college, one of the best courses I ever took was “Public Economics.” We studied distortions in the market caused by boneheaded political schemes, determined whether it was more advantageous to get married on December 31 or January 1 (it can make a big difference in your taxes!), and memorized sections of the tax code. At the end of every lecture, the professor flashed a PowerPoint slide with the phrase “Incentives Matter.” If we remembered nothing else from the class, the professor insisted that we never forget that incentives really do affect behavior. If you want more of something than exists at market equilibrium, incentivize or subsidize it. If you want less of something, tax it.
What if you want fewer people?
One solution – China’s solution – is to impose a steep sin tax on the production of people. Since 1979, the Chinese government has enforced a policy
requiring couples from China’s ethnic Han majority to have only one child (the law has largely exempted ethnic minorities).
Depending on where they live, couples can be fined thousands of dollars for having a supernumerary child without a permit, and reports of forced abortions or sterilization are common….Those who volunteer to have only one child are awarded a “Certificate of Honor for Single-Child Parents.”
On the other hand, as India is discovering, fines and forced abortions might not be the only way to slow fertility rates. The New York Times reports on India’s ingenious experiment:
The program…in Satara is a pilot program — one of several initiatives across the country…trying to slow down population growth by challenging deeply ingrained rural customs…In Satara, local health officials have led campaigns to curb teenage weddings, as well as promoting the “honeymoon package” of cash bonuses and encouraging the use of contraceptives so that couples wait to start a family.[T]he district government…pay [s] 5,000 rupees, or about $106, if the couple wait[s] to have children.
But what if you want more people?
Much of the Western world must contend with the threat of extinction. Russia, for example, with its anemic fertility rate of 1.41 children per mother offers cash prizes amounting to 250,000 rubles (about $9,200) to women who give birth to a second child. Is $9,200 enough of an incentive to increase Russia’s fertility rate? Yes, but only marginally. In the four years since the cash for babies policy was implemented, Russia’s fertility rate has risen from 1.28 to 1.41 children per mother.
A more creative solution for all parties involved? India could use its cash-for-waiting budget to subsidize a Russian advertising campaign that entices young Indian families to move to Russia with promises of land grants (Russia’s got plenty of land east of the Ural Mountains). As deal sweeteners, the Russian government could take its cash-for-babies budget to buy each transplanted Indian family a yurt, a cow, and a set of parkas. The result? India decreases its population; Russia increases its. Win-win! Incentives matter!