Pensions Buy Fewer Babies. Cutting Them Costs Votes. — Julien Reszka

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Italy's 1990s pension cuts raised the birth rate among the workers who lost benefits. Cutting pensions further is exactly the reform democracies survive worst.

56% more Post-reform children averaged by Italian workers hit by the 1992 Amato pension cut (0.49), compared with otherwise identical unaffected workers (0.31) Billari, F.C. & Galasso, V., 'What Explains Fertility? Evidence from Italian Pension Reforms', CESifo Working Paper No. 2646, 2009

Pension reform gets pitched as a budget problem. It is also a fertility policy, just one that runs backward from what most people assume.

The clearest evidence comes from Italy's Amato and Dini pension reforms of the 1990s. Both cut future benefits on a strict, dated cutoff: workers with fifteen or more years of contributions by the end of 1992 kept the old benefit formula, while workers one year short had theirs cut. That single year of seniority opened a 15 point gap in the pension replacement rate, 80 percent of final salary for the protected group against 65 percent for the group one year younger. Francesco Billari and Vincenzo Galasso used that cutoff as a natural experiment to test what actually drives fertility in a low birth rate country.

Their result runs against the obvious guess. Workers who got the smaller pension had more children afterward, not fewer.

Workers hit by the cut averaged 0.49 children in the years after the reform, against 0.31 for the otherwise identical unaffected group

The two groups had statistically indistinguishable fertility before the reform, so the gap opened only once the cut landed

The result held up across every sensitivity check the authors ran on the same natural experiment

The mechanism predates the welfare state: without a state pension to lean on, children become the retirement plan. Billari and Galasso flip the logic around too. The decades long rise in pension generosity across rich countries is itself a plausible driver of the decades long fall in their birth rates. Generous pensions compete with children for the same job, insuring you in old age, and in the data they are winning.

So the fix looks obvious on a whiteboard: shrink the pension, get more babies, get more future taxpayers, close the loop. It almost never happens by ballot.

Ruling Is a Skill. Voting for It Is a Joke. laid out why. Elections select for whoever performs best on the day of the vote, and pensioners turn out at far higher rates than the twenty five year olds who would benefit from a higher birth rate two decades later. Berlusconi's first government did not survive proposing a pension reform. It fell in December 1994, weeks after tabling one, when a coalition partner walked out over it. France's 2023 increase in the retirement age, a modest shift from 62 to 64, needed a constitutional bypass to become law after more than a million people marched against it in a single day. Both governments were trying to move the number a fraction of the distance Amato and Dini moved it.

France Needs 45 Years to Grow Its Way Out explained the other half of the trap. Public spending sits on a curve that is steep when spending is low and flat when spending is already high, and pensions are usually the single largest line item pushing a rich country onto that flat part. Cutting them buys little visible fiscal room in the short run. The fertility payoff is timed worse still: a child born the year of a pension cut does not become a taxpayer for two decades and does not fund anyone else's pension for four. The bill for the cut is paid immediately, in full, by the most reliable voting bloc in the country. The payoff shows up on a different government's watch, if it shows up within an election cycle at all.

That is why the reforms behind the Italian data were not campaign promises. Amato's government took office in June 1992, months before a currency crisis forced the lira out of Europe's exchange rate system that September and blew a hole in the budget. The pension cut was one piece of the emergency austerity that followed, not a policy Amato had run on. Dini's government followed a year later with no electoral mandate at all, installed only after Berlusconi's coalition had already collapsed over the same issue. The clearest natural experiment on pensions and fertility exists because, for a short window, nobody governing had to survive a vote on it.

Myth: Cutting pension benefits hurts the birth rate by leaving retirees and young families with less money to raise children on.Billari, F.C. & Galasso, V., 'What Explains Fertility? Evidence from Italian Pension Reforms', CESifo Working Paper No. 2646, 2009

When a pension cut is defended as good for the birth rate, check the timeline. The child born the day it passes cannot vote for another eighteen years. The pensioners who lose money can vote next year.

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If cutting your parents' pension made you more likely...