Michael Eriksson's Blog

A Swede in Germany

Perverse incentives and meddling politicians

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A discussion of perverse and/or ineffective incentives for e.g. marriage in Germany (and many other countries) is something that I have long had on my todo list. (Another case of so-ambitious-that-I-keep-postponing-it.) To get it out of the way, an abbreviated version.

Germany has many perverse incentives when it comes to e.g. marriage and procreation, including tax breaks for being married and for having children. This with the idea that the citizens should be more likely to marry (as opposed to e.g. cohabit) and have more children (to avoid a shrinking population). I strongly disagree with this already for reasons like it being an anti-democratic* meddling and through the inherent unfairness against those who prefer to stay single and childless.**

*The correct flow of opinion is from citizen to government. When the government tries to prescribe what the citizens should believe (as with e.g. political propaganda funded with government subsidies) or how they should behave (outside of what is necessary for a functioning society and protection from each other) something is greatly amiss.

**Indeed, it goes so far that, again, those who cause less costs have to pay more …

There are many issues with this, including the inherent perverseness: If two people, in this day of high divorce rates, do get married because they want a tax break, how stable should we expect this marriage to be? Chances are that they will be less happy than those who married without a tax break and those who remained unmarried despite a tax break, that they will have an over-average risk of divorce, that they will perversely stick to a failing relationship a few years longer than they would have without the marriage, etc. Certainly, marriage is not something that should be taken so lightly that tax incentives should be a legitimate concern.

Or consider the potentially different effect on the intelligent and the dumb: While the intelligent are more likely to know their opportunities, they are also more likely to see the negative sides of such schemes. This can then lead to an increase (or a greater increase) in the rate of procreation among the dumb, which is the last thing that we need. At an extreme, I have even anecdotally heard of some black teen girls in the U.S. who deliberately got themselves pregnant for the purpose of receiving government money and not having to work for a living. (I do not vouch for this being true, but it remains a good illustration of principle even if not true. Note that it is not necessary for their calculation to be correct—it is enough that they believe it correct.) A less extreme case is formed by those who get pregnant at a young age, who would have been deterred without government money.

Similarly, many of the benefits given to people with children have a greater positive effect on or are given* to a higher degree to those who earn less. Earnings, however, have a positive correlation with intelligence and this will again lead to an unfortunate skew.

*Not necessarily in Germany. I have not looked into the details, but I am under the impression that the income dependence is comparatively weak. When it comes to specifically tax breaks (but not e.g. governmental child support), those who earn well might even benefit more, because of a higher marginal tax-rate (on the other hand, their need for more money is usually smaller).

Or consider the disputable effectiveness and efficiency: Yes, such incentives can move some people in the intended direction, but unless the incentive is quite large, it will mostly move border-line cases—while the money flows even for those who remained with their original decision. We then have a comparatively small effect at a high cost.

As a counter-point, look at the negative incentives created (at least for men) by other legislation, and consider whether removing these negative incentives would not have a better chance of achieving something (often also leading to a fairer system): For instance, if a man marrys*, he exposes himself to an increased risk of loss of property and need to pay alimony in case of a divorce. Unless he is really certain of the marriage and/or the woman, this gives a strong incentive to prefer a non-marriage arrangement. Similarly, if a child, even extra-maritally, even e.g. through a one-night-stand, is born, the man can see himself forced to pay for two decades, in what amounts to a strict-liability system.** Of course, intelligent men are more likely to be deterred by this than unintelligent, ditto sober vs. drunk, etc., adding a further negative skew to the deterrent. (Other perverse incentives that arise from this include that women might be more likely to have children in poor relationships, knowing that they will receive money even should the relationship fail.)

*Even in Germany; however, the situation here is not as disastrous as in the U.S.

**A saner system would put a strict liability on the woman (outside of rape scenarios): unless she has received prior consent for having the child, it should be entirely her responsibility. (Possibly, with a reversal for married couples, where the husband would have to give an explicit veto.) This particularly as the woman has a much greater control over prevention and “postvention” than the man has. At an extreme, even a “sabotaged condom” scenario leaves the woman much better off: if she sabotages the condom and a child is born, the man is still stuck with payments; if he does it, she can still get out through an abortion.

Excursion on school, etc.:
The above is concerned with fairly direct incentives and subsidies. However, a case can be made that the same reasoning should be used on e.g. school, in that tax-financed school is both an incentive to have children and an unfairness towards those who never have children. (A better system, while still “publicly financed”, might use a parents-only financing that distributes costs over time, e.g. through having the parents pay a fix amount every year after the birth of the child that covers the cost of school in accumulation.)

Excursion on lack of appreciation:
An additional problem with many modern schemes is that those who are bright and work hard pay for those who are stupid and/or lazy over the tax bill—and the credit for this goes to the politicians. In older days, with lower taxes and lesser governmental support, those who chose to give support had a much greater chance at receiving credit, gratitude, receive favors of some kind in return, … Today, someone might pay more for the neighbor’s* children than the neighbor does, and the neighbor will quite often either not be aware of this or ignore it—or even call for higher taxes so that he can get even more.

*In a manner of speaking: Obviously, the taxes from person A1 is not given to person A2 and those of person B1 to person B2, etc. The taxes from persons A1, B1, C1, … are pooled and distributed to the persons A2, B2, C2, … The principle behind the it remains the same, however, even with this more anonymous and pooled redistribution.

Excursion on dysgenics:
Dysgenics is another topic on the todo list. Some subtopics are touched upon above. Others include e.g. that those who go through higher education tend to have children later in life than those who do not, leading to longer generations and a further imbalance in the population. (Notwithstanding that the correlation between intelligence and higher education has dropped considerably over time.)

Written by michaeleriksson

December 29, 2019 at 9:04 pm

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