Total CSOK Benefits Could Exceed $60,000 for Some Hungarian Families

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, and constitutional protections. Hungary is not just experiencing a fertility spike; it’s winding back the clock on much of the fertility and family-structure transition that demographers have long considered inevitable.

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. These interest and tax benefits are probably worth around another $15,000 to $50,000 per family, depending on the house they buy and their likely loan terms. In other words, for a married couple buying a new house with at least three kids, the value of their total pay-out could run anywhere from $50,000 to $80,000. Meanwhile, for a couple with just two kids, the pay-out could be from around $18,000 to $35,000. In other words, that extra kid earns the family somewhere between $15,000 and $62,000 extra dollars.

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 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.

Previous research by academics suggests that this increased tax exemption for kids probably did boost birth rates. They estimate that the policy change caused between 6,000 and 18,000 more births from 2011 to 2013. This is strange, however, because these tax benefits are substantially smaller in their total value than CSOK. It is possible, however, that families are more responsive to tax changes than to a new program like CSOK, and couples may expect its benefits to be repealed at some point in the future, whereas tax code changes are more permanent. But taking the effect size given above for the tax changes as given, it’s possible to estimate what the trajectory of age-controlled fertility might have been in a counterfactual scenario where Hungary did not increase the generosity of its tax provisions for families.

But maybe other policies changed, too. We can look at Hungary’s government data to see their total spending (not including structural elements of the tax code), on children, families, and mothers (including CSOK). My preferred way to measure this is total family and child spending, divided by the total number of children in the country, represented as a share of average national income. In other words, as wages rise, if family benefits don’t rise too, the “effective incentive” of a given benefit falls. This metric captures changes in the number of children the surrounding economy, inflation, and policy changes.

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.

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.”

Indeed, if anything, desired childbearing in Hungary is falling! The last data point I could find is in 2013, but at least at that time, desired fertility was continuing its steady slope downwards. If that downward trend in ideals has continued, then the “fertility gap” between current birth rates and current ideals in Hungary is shrinking, which is exactly what we might expect if marriage rates are rising, since marriage is the decisive force shaping fertility achievement.

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 favour families with children, and favour 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.

Hungary’s fertility rates are still extremely low: only about 1.5 children per woman. The government is spending huge amounts of money and will probably never reach replacement-rate with this strategy. However, 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 signalling. 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.