Nova workboard

a blog from young economists at Nova SBE

Should fertility be considered a public good?

Nowadays a huge debate is being discussed in Italy after the introduction of the “Fertility day”, promoted by the Health Minister Beatrice Lorenzin. This day was thought to stress public attention to the importance of fertility and to underline the danger of falling country birth rates. The reaction has been fierce, with many questioning if there may exist a better way to encourage people to have children.

Actually what has caused such an anger is not just the idea of procreation as a matter for the government to intervene in, but the images associated with women’s role, considered as sexist and ageist[1].

Despite moral criticism, it is important to see the question from an economic point of view. Are we sure that “fertility” should be considered as a public good?  Economists are used to refer to public good as a non-rivalrous and non-excludable item. It is basically a product that one individual can consume or enjoy without limiting its availability to any other individual. Public goods are, by definition, provided by the mean of government in order to avoid free riding issues. In that sense “fertility” is not a public good because there is no direct intervention from a central authority. Neither the intervention seems to be needed as a way to repair a market failure. There is no market failure in having too few children. Most people may agree that having a child is a very personal decision based on own values, circumstances and life or career goals. Some people want to have children, some do not, some might only want them later: all choices are equally logic. One may say that people are free to set their own level of children, even if it is zero, and that government should not intervene in this kind of decision. It should NOT, but it is forced to. Because low birth rate is a primary concern to government and to society as a whole. As a matter of fact, many countries are experiencing the problems of an ageing population and have taken measures to try to influence their birth rates since these affect pension system and standard of living[2]. If a country succeeds in setting an optimum level of population, then their people will have a better quality of life due to an increase in services, infrastructures, incomes. But there are still many implications on the public finance side. One of them is a redistribution issue: if maternity and housing benefits will be provided with taxation then people who are not keen on having a child (because they don’t want or they cannot) will subsidize the couples with a parenthood willingness. Another question would be: is it better to offer cash transfer in order to pay children stuff or to provide in kind services as healthcare and nursery? It’s clear that this phenomenon involves all of us, besides the weak economic framework that is triggering our society by a decade. Roughly speaking, the decision of having a child affects also the ones who do not.

Many weird proposals had been already thought such as giving a flyer about how to flirt (South Korea), divulgate fairytales (Japan) or invite couples to take a holiday (Denmark)[3] but in the meanwhile, population continues to age, affecting all welfare state and above all social security and pension system.

Thus “fertility” may be not a public good, but rather a public concern.








Ageing and health expenditures in Portugal – an overview

On September 14-15, a conference promoted by Fundação Francisco Manuel dos Santos, launched a large debate about how Portugal will be in 2030. One of the topics subject to discussion was ageing and the challenges it poses to the Welfare State. During that weekend, the debate was also extended to the media. As expected, the skeptics appeared and presented ageing as an enemy, responsible for jeopardizing the sustainability of the Welfare State and for uncontrollable health expenditures in the future.

From my point of view, it is impossible to reach those conclusions with such certainty, as far as we are in 2012. The Welfare State is not an unchangeable concept – instead, it is an emanation from society aimed at answering to the most imperative problems concerned with well-being. Therefore, since problems are continuously changing, new challenges require new and more prepared answers.

Why do people tend to easily conclude that ageing will imply more and more resources to be allocated to the health sector? As a starting point, the following graph may provide a hint:

Here, we must recall our first lesson from statistics: correlation does not imply causation. In fact, there is a strong positive correlation between the 2 variables: the weight of population aged more than 65 is growing and public health expenditures have also been growing (and also private expenditures, though not mentioned). The main difference is that public health expenditures have been growing very much faster.  

As predicted by the Grossman model, the older we are the more healthcare we demand. It is also important to recognize that older people cost more to the system – they are more likely to have chronic diseases, cardiac problems, dementia and diabetes, which require longer stays in hospitals. However, the ageing effect is somewhat overvalued, since other factors have contributed more decisively to health expenditures growth. Barros (1998) confirms that ageing is of less importance for healthcare expenditures than usually pointed out – his estimates suggest that ageing has no explanatory power on healthcare expenditures.[1] Since ageing has a strong impact on other aspects of the Welfare State, mainly retirement pensions, there is a common extrapolation to healthcare services of this demographic pressure. Nevertheless, at the same time, urban middle-classes with rising incomes, new needs and preferences, also originated a fast-growing demand for healthcare. But, more importantly, we have the role of cost drivers: medical and technological advances (new equipment and better OR conditions) have increased costs and healthcare services have also become more expensive (inflation).

In my opinion, the impact of ageing population alone will not be responsible for uncontrollable health expenditures in the future. Furthermore, we cannot also forget that devoting more resources to the health sector can potentially increase life-expectancy. This also means that in the medium/long-run, since individuals live longer, they will tend to invest more in education and increase the stock of human capital, with a likely positive impact on economic growth. However, more population above 65 also means the possibility of lobbying in order to change government policies in favor of their interests: withdrawing resources from youth (e.g.: sports and education) to employ in a higher budget for healthcare. Which effect will prevail? Well, in 2030, I will surely have a better answer!

By Tiago Silva

[1] Barros, P.P., 1998, “The black-box of health care growth determinants”, Health Economics, 7(6). 533-544.