Falling fertility could boost Denmark's economy by billions

A future decrease in fertility rates in Denmark could surprisingly benefit the public purse, potentially improving public finances by 15 billion kroner annually by the year 2100. This projection stems from a research project at Aarhus University, supported by the Rockwool Foundation, which analyzes the economic consequences of demographic shifts.

Professor of Economics Torben M. Andersen, who led the research, explained that Denmark invests substantial public resources in children and education. As a result, a decline in birth rates is expected to yield savings in areas such as daycare and schooling. These savings are projected to exceed the later economic drawbacks associated with a smaller workforce and reduced tax revenues.

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And the results here show that when fewer children are born in the future, the savings on, among other things, daycare institutions, school and education will therefore collectively be greater than the later loss from a smaller workforce and fewer tax revenues.

The study integrates population development with factors like the labor force, employment, tax income, pensions, public spending, and corporate behavior. It also examines trends in other high-income countries where fertility rates are below the replacement level of 2.1 children per woman, leading to aging populations.

In these countries, lower fertility typically impacts the economy in two phases. Initially, reduced spending on children and youth lowers the overall "dependency ratio" for up to five decades. Subsequently, smaller working-age generations can lead to decreased tax revenues and increased pressure from a larger elderly population. Andersen noted that Denmark's potential savings warrant further investigation into whether similar economic advantages materialize in comparable nations, challenging the notion that falling fertility is inherently a "bomb" for the economy.

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When we can see that Denmark can have a large saving with fewer children in the future, it can make sense to investigate whether that development also applies in other countries we compare ourselves with, to find out whether falling fertility is a bomb under the economy or not.