Is Hungary Experiencing a Policy-Induced Baby Boom?

In 2015, the government of Hungary announced a major new policy: families would be given generous subsidies to buy or build new homes, and the subsidies would scale up based on their marital status and the number of children they had. This “Family Housing Allowance Program,” or CSOK (the abbreviation of the program’s Hungarian name), gives a maximum benefit to married couples with three or more children, equivalent to a $36,000 grant to buy a new home, alongside a major value-added tax deduction for each home, and a capped-interest loan for part of the home value. {snip} Given that the average salary in Hungary is only around $11,000 to $15,000 per year, an equivalently-impactful subsidy for Americans, based on our higher incomes, would need to amount to somewhere between $40,000 and $250,000.

Imagine the U.S. government offered a $200,000 payout to have a third child. Do you think some people would be more likely to have that extra child? My guess is that they definitely would. I’ve written in the past that financial incentives for childbearing tend to be very expensive compared to the modest number of births they actually induce: most financial incentives are not highly effective at promoting sustainable fertility increases.

{snip} No American policymaker has ever proposed something remotely as generous as what Viktor Orban’s Fidesz party has recently done for Hungary’s families and children. I said a similar thing in a previous piece about Poland’s right-wing populist government, which virtually ended child poverty through their generous family-support policies. Europe’s populists have babies on their mind.

But with all that money being spent, we may wonder: is it having any impact?

A simple chart of Hungary’s monthly births doesn’t show any obvious boom in the last few years. Zooming in to look at annual change rates in monthly births doesn’t show any stronger boom either: in fact, early 2018 appears worse than 2017 in terms of births.

But this monthly data is crude and doesn’t account for underlying population changes. To get that, we need the total fertility rate, which estimates how many children a woman entering her childbearing years in a given year can expect to have if birth rates are stable during her lifetime.

And here we see that TFR is rising quickly. That’s unusual, as most countries around the world are currently experiencing stable or falling fertility, especially in Europe. So there probably is something interesting going on in Hungary’s fertility environment, and worth exploring further. {snip}

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{snip} Hungary’s married young women have seen fertility increases in recent years, and fertility for women ages 30-34 has seen particular growth. That’s consistent with these policies having some effect.

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Hungary’s Policy Changes Are Wide-Ranging

But that makes this next question even more interesting: if this huge cash subsidy is not causing a baby boom, what is?

First of all, in 2011 and 2012, Hungary changed the structure of their tax exemptions for children, providing new deductions that saved families between $400 and $1,500 on their tax bill per child, depending on how many kids they have. A similarly-generous deduction in the U.S., given our higher incomes and our different tax rates, would mean the introduction of a between $4,000 and $16,000 per-child tax deduction.

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Culture May Matter

There may be something else at work here: a marriage boom.

Starting around 2012, but really taking off in 2015 and 2016, women in Hungary started becoming more likely to get married. The marriage rates shown below reflect what share of unmarried women in a given age group the year prior got married in the last year. In most countries, this number is flat or falling, especially for younger women, as the average age of first marriage is pushed later and later. But in Hungary, the rise in the age of first marriage, which has been so inexorable in other countries, has actually stalled out and perhaps started to fall. The country is not just experiencing a fertility spike; Hungary is winding back the clock on much of the fertility and family-structure transition that demographers have long considered inevitable.

This is true even on some unfortunate metrics: unmarried teen pregnancies have risen in Hungary in recent years, even as they have fallen in other countries. Marriage rates of teen women are rising as well, which may be good, or may reflect women being relegated to homemaker roles and kept out of the public sphere, perhaps against their desires.

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However, in 2011, Hungary adopted a new, and extremely controversial, constitution. Criticized by many international organizations as consolidating too much power around the ruling party, the document was Hungary’s first democratically produced framework for governing. It includes statements such as, “We trust in a jointly-shaped future and the commitment of younger generations. We believe that our children and grandchildren will make Hungary great again,” and, “We hold that the family and the nation constitute the principal framework for our coexistence,” and “We bear responsibility for our descendants.” It also includes strong language committing the country to historic national heritage, Christian identity, and community values. Moreover, Article L of the constitution, which, again, is the basis of Hungarian government today, says,

“Hungary shall protect the institution of marriage as the union of a man and a woman… and the family as the basis of the nation’s survival. Hungary shall encourage the commitment to have children. The protection of families shall be regulated by a cardinal Act.”

These changes were largely a surprise to many Hungarians, who are not, according to public surveys, an extremely religious or family-oriented people; in fact, Hungary has the third highest religiously unaffiliated population share in central and eastern Europe. But while it may have been a surprise, once implemented, constitutions can be hard to undo. Whatever exact policy details may be, Hungarians have a durable commitment from their government to make sure that some kind of family support will always exist: it’s written in the constitution! Given the long-term nature of child-rearing, this guarantee may be very important and serve as a positive shock to the long-run family expectations of Hungarian women.

It’s also possible that the proclamation of a constitution so directly aimed at ginning up national feeling, a sense of connectedness to heritage, and a promotion of the family has its own cultural effect. I’ve shown before that “cultural policies” can have large effects on childbearing and marriage: it’s possible that Hungary’s constitutional change is a kind of cultural signal to Hungarians, urging them to adopt somewhat different values.

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{snip} In other words, to the extent that Hungary’s tax changes or subsidies through CSOK impacted fertility, and to the extent that cultural norms propagated in Hungary’s new constitution may matter, it’s probably not through the direct incentivization of childbearing, but through the indirect incentivization of marriage. And marriage makes childbearing much more likely among the vast majority of women who desire to have kids.

By providing a grant for married couples with children, CSOK incentivizes childbearing, sure, but it also gives couples the financing they need to get a new home and live together, provided they are willing to get hitched. Hungary’s tax benefits favor families with children, and favor married filers with children the most. Beyond the direct natality incentive, these policies may induce more marriages, and with more marriages, you get more births of all kinds, including first and second kids, despite the much smaller CSOK subsidies than what is offered for a third child.

{snip} Hungary is experiencing some fertility gains, probably at least partly as a result of a basket of policy changes including tax preferences, cash grants, loan subsidies, constitutional protections, and costly political signaling. But to the extent these policies are working, they are effective because they are not being used in isolation, but rather together as a whole concert of pro-natal policies and cultural nudges. And they are working because they induce marriage, not simply childbearing, and marriage helps boost long-run fertility, not just birth-timing.

[Editor’s Note: The original story contains a number of supporting graphs and charts.]