The evidence vacuum


Can it really be true? [HT: Sinclair Davidson]

Parents of newborns will be able to receive a $500 early payment of their baby bonus, Prime Minister Julia Gillard has announced.

From July 2011, eligible parents will receive a larger, more flexible advance on their Family Tax Benefit entitlement.

Apparently so. If there is one piece of evidence that is non-controversial and surely solid enough for actual policy impact, it is the fact that when you introduce a payment for delivery that rises $500 or more on a particular day, you will cause babies to be shifted to that day. Here is the link to my paper with Andrew Leigh on the subject.

So what is the Prime Minster proposing? To do just that on the 1st July, 2011 (if they are re-elected that is). Now this is different from the distortions provided by the Howard Government (in 2004 and 2006), the Rudd Government (in 2008) and the Rudd Government possibly again at the end of 2008. It is smaller and it is also a brought forward payment rather than a new payment. But it doesn’t look good because it is simply unnecessary to time things this way. If you are trying to portray yourself as believing in evidence-based policy together with market design, doing things this way strikes me as a big negative.

That said, the alternative is a party that wants to design the labour market to give firms the biggest incentive to entrench gender discrimination all in the name of supporting women. At the same time, there is an apparent 1.5% hike in company taxes for one year only (yes, one year only) to fund this. I think earnings might be low that year.

14 Responses to "The evidence vacuum"
  1. It’s possible they’re aware of the evidence but don’t think it’s relevant. Clearly there’s a timing impact, but do we know what the additional costs to the community are? The Government will claim parents will benefit substantially from the early payment and this would outweigh any issues caused by the impact on birth timing.

  2. You’ve made that point before, and yes, your research is interesting.  But given that they want it to become policy, how else would you have them introduce it?

  3. Joshua,
    I don’t get your point.  The government is in “caretaker mode”.  It can’t introduce any policy “today”.  But, on your analysis, it shouldn’t announce any future implementation either.
    I suppose Labor could surprise us by implementing the policy with no notice after it is re-elected.  But how does this help it to win the election?  And how does democracy work if parties are not permitted to present their policy promises?

  4. As I read the policy, parents will only be able to bring forward part of the payment that they would have been able to get anyway, so there is no change in total entitlement – I am unclear how this will affect birth timing.

  5. Dave, theoretically Labor could announce the policy and say that, assuming they win government, it will take effect from a date to be chosen at random sometime in the next term and announced at the time.
    It’d be pretty weird to hear that, and I don’t know how it’d go PR-wise, but I think it would satisfy Josh.

  6. David, I think that would work. Labor can announce that the policy will be introduced on a date chosen at random in the first six months of their term, and the chosen day will only be announced on that day.
    That is definitely superior to this current early warning convention.

  7. To repeat myself:  this policy does not change entitlements just varies part of the form in which payments are made. A child born on 30 June will produce the same entitlement as one born on 1 or 2 July.  It is simply that after 1 July a parent will be able to access some of their payment as a lump sum in advance, but the parents of children born before and after 1 July will be in exactly the same position. There is no reason to think that there is an incentive to delay births.

  8. David/Rachael,
    Yes, good one.  One for the academics, but not very good politics, I would think.

    “That said, the alternative is a party that wants to design the labour market to give firms the biggest incentive to entrench gender discrimination all in the name of supporting women.

    Care to expand on this a little?
    Correct me if I’m wrong, but I gather your argument is that firms face the cost of losing female employees for six months at a time; as such, this represents a disincentive to hire them.
    If so, why is it significantly worse than the scheme that’s just been passed into law?

  10. Robert, because the scheme that’s just been passed into law comes out of the <b>taxpayer’s</b> pocket, not the firm’s.

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