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ifo Institute Criticises Planned Increase in Child Benefit

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The ifo Institute has criticised the planned increase in child benefit in the coalition agreement. “The advantage of such an increase, measured in terms of family policy goals, is small according to our current knowledge; while its costs are disproportionately high,” notes Helmut Rainer, Director of the ifo Center for Labour and Demographic Economics. “It would be more target-oriented and effective to invest more money in the quantitative and qualitative expansion of childcare, since this has proven positive effects. It encourages mothers to work and improves the financial situation of families at the same time. It also has a positive effect on birth rates and can support the development of children, especially from

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The ifo Institute has criticised the planned increase in child benefit in the coalition agreement. “The advantage of such an increase, measured in terms of family policy goals, is small according to our current knowledge; while its costs are disproportionately high,” notes Helmut Rainer, Director of the ifo Center for Labour and Demographic Economics.

“It would be more target-oriented and effective to invest more money in the quantitative and qualitative expansion of childcare, since this has proven positive effects. It encourages mothers to work and improves the financial situation of families at the same time. It also has a positive effect on birth rates and can support the development of children, especially from disadvantaged backgrounds,” explains Rainer. “That is why the 3.5 billion euros earmarked for the child benefit increase would be better spent on daycare in primary schools, which is only earmarked to receive 2 billion euros in funding to date, and on expanding nursery facilities, which has been allocated 3.5 billion euros to date. That would constitute a sustainable family policy that takes its own goals seriously,” he adds.

A central family policy measure to emerge from the coalition talks between the CDU/CSU and the SPD is a EUR 25 increase in child benefit. This will cost an extra EUR 3.5 billion euros over the entire legislative period.

In 2009 the German federal government, which was also a grand coalition at the time, commissioned an overall evaluation of all marital and family-related benefits. The goal was to evaluate key family policy measures in view of the following goals: to secure the economic stability of families, to improve the compatibility of family and career, the well-being and development of children, as well as the realisation of couples’ desire to start a family. The ifo Institute examined the extent to which the last large increase in child benefit contributed to achieving this goal. The results were fairly sobering: the increase in child benefit lowered the level of employment among mothers. Although this gave them greater scope for manoeuvre in terms of time, it did not improve the financial situation of families, since the drop in working hours resulted in wage losses. The financial incentive hardly exercised any influence over birth rates either. The state also incurred additional indirect costs due to lower tax income and lower social security contributions.

Publication (in German)

  1. Fichtl, Anita, Timo Hener and Helmut Rainer, "Familienpolitik in Deutschland: Kausale Evaluationsstudien und ausgewählte Ergebnisse", Perspektiven der Wirtschaftspolitik 18 (2), 2017, 117–131 | Details

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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