Bryan Caplan  

Bleg: The Present Discounted Value of a Newborn Taxpayer

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I'm looking for estimates of the PDV of a newborn American baby from the point of view of the consolidated government budget, a.k.a. the "fiscal externality" of a birth.  Other than Lee and Miller (1990), I'm not finding much.  Anything I'm missing?


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COMMENTS (17 to date)
David R. Henderson writes:

Best guess: Check whether Kotlikoff has written on this.

Dog of Justice writes:

I believe David D. Friedman investigated this question very early in his career, and was unable to determine the sign of the number; you could ask him for more details.

Doug writes:

http://economix.blogs.nytimes.com/2010/03/29/the-present-value-of-producing-future-taxpayers/

Finch writes:

Talking strictly about the value to government, not to the rest of us:

It's a big negative, isn't it? The government runs a deficit - therefore it is losing money servicing us. There are segments of the population that are "profitable," insofar as they pay more taxes than they consume services, but we average out negative.

Am I missing something?

Ryan P writes:

Finch,
Except for stuff like defense, where there are very large costs but it's unclear to what extent or even whether they're increasing in population.

Finch writes:

> Except for stuff like defense, where there are
> very large costs but it's unclear to what extent
> or even whether they're increasing in population.

Sure. That makes it hard to figure out who is profitable, because maybe defense shouldn't be allocate pro-rata, say because high-earners consume a bigger share of the benefits. But that doesn't change the fact that we pay in and benefit unevenly and net out negative, right?

Is your point that the marginal child maybe shouldn't have defense costs charged against him? Bryan didn't ask about the margin, although that is also an interesting question.

Steve Sailer writes:

National Science Foundation reported on costs of immigrants in 1997. Those without a high school degree had large negative costs to the government.

Evan writes:

I can see what you're trying to do here Bryan, I imagine you're trying to demonstrate that kids are generally not a fiscal externality to the government(or at least not any more than adults) and therefore it is even more desirable to have them. You're wasting your time though.

You see, no one on this planet has ever made a "fiscal externality" argument in good faith. No one ever has made this argument out of a genuine desire to save the government money. Everyone who makes it is irrationally bigoted in some way against the group they claim imposes the fiscal externality. They are just using said externality, real or imagined, as a moral club, a way to score points against that hated group without having to admit their bigotry.

People who claim smokers generate a fiscal externality are just snobs who don't like the smell and commies who love to bash corporations.

People who claim fat people generate a fiscal externality are just jerks who think fat is gross, and more commies who love to bash corporations.

The people in the Dutch Parliament who tried to tax stay-at-home mothers because they weren't paying back on the "investment" the government made in educating them were just crazy extremist feminists who hated traditional families.

People who claim poor people are "welfare queens" who generate a fiscal externality are either classists who hate poor people or racists who hate black and brown people. Ditto for people who make similar claims about immigrants.

Such claims also show (probably willful) ignorance of how the government is funded. Your taxes don't automatically go up if someone starts consuming social services, and funds aren't automatically diverted from other areas. And even if they did it would be the government you should get angry at, not the people who use its services. They'd be fools not to use them, if they didn't then someone else would.

If someone claims that children generate a "fiscal externality" then they are either a bigot who hates children for some crazy reason, a Zero population growth zealot, or a racist who thinks black and brown people are having too many kids. If you refute their arguments you won't persuade them, you'll just make them get defensive. They'll either deny your arguments are true, or make up new ones. I personally consider anyone who makes a "fiscal externality" argument to have automatically lost the argument. I have trouble taking them seriously afterwards.

David N writes:

Except for assuming too much about your motives, I really like what Evan wrote above. I'm doubtful one could even estimate a PV that wouldn't have a huge variance, and I'm curious about what the discount rate is based on and who chooses it.

Nick Bradley writes:

It's about $217,000 on average in 2009 dollars. However, the value varies considerably based on the education level of the parent. Earlier studies estimated that the children of high school dropouts was only worth $90,000, while the children of HS grads is over $200k.

If that's the case, the child tax credit should be a tax deduction instead of a credit, so those at higher marginal tax rates have a greater incentive to have children. So if you converted the $1,000 child credit to a deduction, those in the 15% bracket would have a $6,666.66 deduction and save $1,000 on taxes, while those in the 25% bracket would save $1,600.

https://udrive.oit.umass.edu/folbre/paa%20pap%20rev.pdf

Dog of Justice writes:

Um, Evan, you do realize that externalities can be positive *or* negative, right?

Nick Bradley writes:

It's about $217,000 on average in 2009 dollars. However, the value varies considerably based on the education level of the parent. Earlier studies estimated that the children of high school dropouts was only worth $90,000, while the children of HS grads is over $200k.

If that's the case, the child tax credit should be a tax deduction instead of a credit, so those at higher marginal tax rates have a greater incentive to have children. So if you converted the $1,000 child credit to a deduction, those in the 15% bracket would have a $6,666.66 deduction and save $1,000 on taxes, while those in the 25% bracket would save $1,600.

https://udrive.oit.umass.edu/folbre/paa%20pap%20rev.pdf

Nick Bradley writes:

This also puts the economic cost of all abortions since Roe v. Wade at $11 Trillion dollars...roughly the size of the US Government's Debt.

Evan writes:
Um, Evan, you do realize that externalities can be positive *or* negative, right?
Excellent point. I should have said "negative fiscal externalities" in my post.
This also puts the economic cost of all abortions since Roe v. Wade at $11 Trillion dollars...roughly the size of the US Government's Debt.
That assumes that, in a world where abortion was illegal a woman would have born all the children she would have aborted, plus all the children she had in our world. In other words, if a woman had 2 abortions and 4 kids in our world, in a world where abortion was illegal she would have had 6 kids.

I find that unlikely. It seems like common sense that if a woman was forced to have a child she would have aborted, she would choose to have less children later to compensate. I found blog post by Steven Levitt where he talks about a paper he co-authored saying the same thing.

While it is true there have been many millions of abortions (although according to the official statistics more like 35 million than 45 million), even if those abortions had not occurred, there would not be that many more Americans today. The reason is that the primary impact of an abortion is not to reduce a woman’s lifetime number of children born, but rather, to simply shift the timing of a woman’s fertility from early in life to later in life.

You can find the post here and the paper here.

Nick Bradley writes:

I don't think you just saw a mother's age time-shift -- if you look at the fertility data, you don't see an increase in the fertility rate for older women at all -- all age groups drop.

In addition, these numbers do not count second-order effects, like the children of children who were never born.

Paul ralley writes:

Is there a simple model here? If we take the *trend* ngdp growth, which is above government borrowing costs as a discount factor, then the value of the median (mean?) Child has an inifinite value?

Finch writes:

@Paul ralley, etc.

The positive measures are counting benefits that manifest to entities other than the government. I wholeheartedly agree that the benefit of a child to humanity is a large positive for the vast majority of children.

But the question was about the government, not the people. The government does two things: 1) it taxes, and 2) it spends (for the betterment of its citizens). And, netted out, it is losing money. The investment it makes in its citizens is not paying off in enough tax revenue to make it profitable. Therefore, on average, we are a losing investment for the government, and the present value of each new investment opportunity (baby) must be negative.

There's a little bit of wiggle room when you consider the distribution of taxes and benefits in time, and the incidence of taxes on non-citizens. And we probably _want_ the government to be losing money slowly over time, so it's not like there's some big moral point to be made here.

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