High Efficiency Fertility Policy via A Sovereign Fertility Fund

In the context of the international fertility crisis, ways to solve and adapt to demographic problems are of increasing interest. In this report we identify low efficiency as a problem facing fertility policy, and propose a high-efficiency fertility policy built upon three novel parts : infertility taxes that disincentivize infertility and finance a Sovereign Fertility Fund, a Sovereign Fertility Fund that multiplies the value of infertility taxes via compound interest, and high-limit, high-value disbursements that ensure the majority of funds are spent on securing new, additional production of human capital.

First, a theoretical preamble that describes the problem of inefficiency. A fertility policy is logically divided into its value V, which is the monetary value of the benefit it offers, and its limit L, which is the ordinal number of children born at which the policy pays its value to each beneficiary. The proper function of a fertility policy is to induce beneficiaries by means of its value to have more children than they otherwise would have had in the absence of the policy, ideally creating a positive net change in each beneficiary’s future final fertility from Q¹ to Q² > Q¹. However, the state has no crystal ball to differentiate beneficiaries by their Q¹ which is the future final fertility they had prior to the policy’s implementation. Therefore, a fertility policy will always mistakenly pay its value V to each beneficiary who would have produced quantity of children Q¹ ≥ L had it not existed. A fertility policy will also mistakenly pay its entire, non-prorated value V to each beneficiary who would have produced a quantity of children Q¹ where 0 < Q¹ < L had it not existed. In the context of fertility policy’s proper function such expenditures are waste W as they are payments for non-additional production the state had already secured at lower price levels, in the first scenario W = L × V and in the latter scenario W = Q¹/L × V. In the dimension of disbursement to beneficiaries, a fertility policy’s efficiency is the percentage of children of ordinal rank ≤ L produced by all beneficiaries that would not have been born in absence of the policy. Assuming a constant distribution of beneficiaries by Q¹ that does not change as L increases and a constant value V, it is clear that waste W rapidly decreases as L increases as the % of beneficiaries whose Q¹ ≥ L decreases with each L = L + 1 and for each beneficiary whose Q¹ > 0 their Q¹/L diminishes with each L = L + 1.

Present fertility policy tends towards inefficiency and waste. It sticks to a low limit which we define as L ≤ 2 and deprives itself of the significant gains in efficiency offered by L > 3. What’s worse, efficiency at a low limit is wholly dependent upon the participation of cost-sensitive nonproducers and one-child households whose Q¹ ≤ 1. These especially the childless are the most unlikely to trade their labor for anything less than a market wage over the period of production required to raise children. Therefore, present policy’s insistence on L ≤ 2 puts the state between the proverbial “rock and a hard place”. The state must either strain its finances for few returns and high W by offering a high V at a low limit, or stick with a low V at any limit and accept near-zero fertility gains due to low participation from those whose Q¹ < L. This report’s proposal seeks to resolve the conundrum of efficiency not merely in the dimension of a fertility policy’s disbursement as above, but also in a policy’s holding and its revenue, by answering the question : what would fertility policy designed for efficiency look like?

Revenue is the first dimension of fertility policy. A fertility policy’s revenue is the method by which it acquires its funds. We propose a lifetime flat income tax on all citizens who have not conceived and properly served as a parent for at least two children, and all migrant laborers and noncitizens regardless of number of children they may have. We propose that the specific rate of this income tax be determined by experts of a Central Demographic Bank tasked with managing this proposal. We suggest that the rate of this infertility tax fluctuate as demographic projections change for better or worse. We also suggest removal of overtime limitations and shifting of differentials to state responsibility via “No Tax on Overtime”.

Holding is the second dimension of fertility policy. A fertility policy’s holding is what it does with its revenue before disbursing it to its beneficiaries. We propose the creation of a Sovereign Fertility Fund (SFF) that holds and invests all revenues derived from infertility taxes in domestic and international markets to achieve an average real rate of return in the range of 4% to 7% per annum. We suggest that all revenues be held for an extended timeframe, 80 to 90 years, so that by the multiplicative power of compound interest, a superabundance of means arises with which the fertility deficits of subsequent generations may be continually corrected.

Disbursement is the third dimension of fertility policy. A fertility policy’s disbursement is how it disburses its holdings to beneficiaries. We propose that disbursements from the state SFF occur in the form of high-limit, market wage equivalent value disbursements over the entire period of production. “High-limit”, fertility policy with a limit L ≥ 4. “Market wage equivalent value”, a value V paid weekly that is greater than or equal to average hourly wage A × 40. “Over the entire period of production”, from the first child until the child whose ordinal rank equals L reaches the age of 18. As the value V is advanced ahead of production, we suggest use of each beneficiary’s pension as collateral and that a contract govern their productive relationship with the state’s SFF. Additionally, we propose that the state only accept as contracted beneficiaries certified producers who have graduated an accredited vocational program that qualifies them as responsible, diligent producers of high-quality human capital.

Some supporting observations. Infertility taxes address the root cause of the fertility crisis as a tragedy of the commons. A tragedy of the commons is a shortage of a resource caused by the absence of a pricing structure that compels those who profit from its diminishment to finance its replenishment ; for example, if those who felled trees on state lands were not made to replant or pay for the replanting of forests, a tragedy of the commons would arise in the shortage of forests ; In our present crisis, the same principle applies. The infertile profit from the state’s existing stock of human capital yet refuse to contribute to its replenishment. Infertility taxes equalize costs and solve this tragedy.

A sovereign fertility fund emerges as key aspect of efficiency as it utilizes the multiplicative power of compound interest to produce a superabundance of means. For example, for each $1 invested in the SFF held 85 years at a 4% real rate of return the state acquires $28.04 at a later time to invest in human capital production. High-limit, market wage equivalent disbursements guarantee success by following a proven course : offering a wage to skilled labor in exchange for high production. For a concrete example, using parity progression ratios for Norway’s 1972 age-cohort (humanfertility.org) as a hypothetical distribution for beneficiaries’ Q¹, we observe that the efficiency of disbursement improves from 10.8% at L = 1 to 50.09% at L = 4 with further gains above it.

If this report’s proposal is implemented, we expect a long-term resolution of the fertility crisis. While the exact method of disbursement can be determined later, we propose the creation of a Sovereign Fertility Fund and a small, initial infertility tax as two specific steps for putting the idea into practice that can easily be accomplished.