Monday, October 23, 2006

Estonia fights the demographic decline

The American Scene has a post on an attempt at reversing the demographic decline from the party that brought us the marvellous Estonian flat tax. Essentially it is a mother's salary which pays in relation to the salary that is being lost to parenthood.

I am somewhat of a moderate on the issue of the demographic decline. I do not agree with predictions from authors like Mark Steyn who prophesise a demographic apocalypse in Europe. These predictions always seem to satisfy the authors a little too much; like Left Behind novels they constitute the imaginary revenge of the overly moral over those enjoying life a little more. That all those beautiful Europeans enjoying themselves while Steyn fulminates are going the way of the dinosaur entertains him too much and causes him to put far too much faith in the kind of extrapolations that the right is usually justifiedly cautious about. The evidence suggests that the decline is actually far more moderate.

However, even if the decline is moderate it could still be important. Ageing populations create fiscal difficulties and declining populations affect the balance of national power (growth matters but population has an importance beyond GDP). Equally, immigration as an alternative is proving increasingly difficult to accomodate.

The Estonian plan could lead to a further decrease in the fertility rate at first. As it bases the benefit on the mother's income at the time the child is borne it encourages having children later on when their income is nearer its peak in middle age. However, the advantage is that this removes the need to choose between not incentivising anyone with a medium or high income thanks to setting the level too low or incentivise "welfare babies" from those on low incomes.

It'll be interesting to see how it works out.

1 comment:

Gracchi said...

Glad to see you are sane on the subject-

The Estonian idea does need time to see how it works but is worth thinking about- a strategy would be a good idea but as you say we shouldn't overestimate the problem.

Oh one of the more interesting things about this all is that another country with a big demographic crisis- bigger considering its lack of wealth is China thanks to the one child policy.