Fiscal Effects of Having Children

This applies, for example, to the question of what degree of public redistribution between people without children and families with children should be considered fair, and to the positive economic effects that result from better conditions for children’s education and development. The present study found that, at 2025 prices, an average family with two children contributes a total of 603,800 Euro more to public finances over the long term than a comparable childless couple. This calculation does not include government expenditure on services that are not attributable to individuals, but whose need depends on the size of the population, as is the case with transport infrastructure. If these costs are taken into account, the positive contribution of an average child falls from 301,900 Euro to 83,100 Euro. At the same time, children also generate positive second-round effects on government revenue, which could not be considered here. This applies in particular to taxes on the corporate profits generated by children through their employment and innovations.

When examining education and family policy issues, fiscal balances differentiated by children’s educational pathways can help assess the benefits of relevant measures. For an academic educational pathway, the average fiscal contribution of a child is 943,000 Euro, excluding the fiscal effects of parenthood and government services that are not attributable to individuals. For an educational pathway leading to a vocational qualification, the figure is 117,600 Euro; for a basic vocational qualification, it is 44,200 Euro and for a pathway involving advanced vocational training, for example to become a master craftsperson, 531,200 Euro. If children do not obtain a vocational qualification, there is no net surplus in government revenue; instead, the state incurs a deficit of 377,100 Euro. Given such substantial differences in the overall fiscal effects, even costly measures to support children’s education can generate very strong returns if they are effective.

In addition to educational pathways, the development of health also affects the amount of tax and social security contributions children pay over the course of their lives and the extent to which they receive government benefits. Thus, support services in this area can also represent investments for the state that generate very substantial long-term returns. However, the available data are considerably less favourable than in the field of education. For the present study, an indicator of a health-conscious lifestyle in adulthood was developed on the basis of information on tobacco and alcohol consumption, the consumption of vegetables, fruit and salad, and a minimum level of physical activity. Its relationship with long-term outcomes was then analysed. However, important causal links involving health status could not be taken into account. For an average child, a healthy lifestyle, without any possible adjustments to educational pathways, results in an additional contribution to public finances of 130,900 Euro. The effects of depressive illness on labour-market participation and income, as well as on health-insurance expenditure, were also estimated. Taken together, these effects result in a negative fiscal impact of 345,500 Euro for an average child.

This study is primarily intended as a background paper for further analyses of the fiscal effects of various education and family policy measures. It therefore deliberately does not yet derive or present any policy recommendations.