Germany's baby bonus

People respond to incentives - even expectant mothers. We know from Andrew Leigh and Joshua Gans' recent paper, for example, that Australia's 'baby bonus' resulted in over 1,000 births being moved from late June to early July 2004, mostly via fewer C-sections and inducement procedures.

It looks like Germany is experiencing a similar effect, as expectant German mothers delay giving birth to cash in on benefits. Today's Scotsman reports:

Heavily pregnant German women are going to extreme lengths to delay giving birth until 1 January 2007 - because a new law will mean a difference of tens of thousands of pounds in benefits.

Parents of babies born in Germany on or after January 1 will benefit from generous new family subsidies. Consequently, all sorts of tips about keeping baby at bay are being traded on the internet, in magazines and in family planning classes.

"From Christmas onwards, I have been standing on my head," said expectant mother Antje Grimm. "I have heard that is one way to stop the child from becoming too overactive while not harming it."

Under the new Elterngeld, or "parents' money" law, parents who stay home to look after the newborn child will receive 67 per cent of their last net income tax free, or up to 1,800 - more than £1,300 - a month, for the first 12, or in some cases 14, months after the birth.

The already affluent, in particular, will be significantly better off. Currently, parents whose annual net income lies below a certain level - 30,000 per couple - can choose between up to 24 monthly payments of up to 300 or 12 monthly payments of up to 450.

...the motivation behind the plan to get Germans reproducing is based on sheer pragmatism: the German birth rate has fallen to an average of 1.3 children per woman - far lower than the 2.1 children per family replacement rate needed in industrialised countries. The Federal Statistics Office has ominously forecasted a drop in the population from today's 82 million people to just 69 million by 2050 - a decline it warned "cannot be halted".

That kind of demographic implosion would spell disaster for the country's creaking pension system. The shrinking population could also result in a shortage of skilled workers and lack of innovation.

German politicians hope the legislation can help reverse that trend.

Though the law may help in the long run, it has expectant mothers in their last days of pregnancy feeling a bit anxious. In recent weeks, soon-to-be parents have inundated doctors and midwives for advice on how to prolong pregnancy.

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