12 years ago, this small Finnish town offered baby bonuses...now it faces bankruptcy

It puts under question the idea of paying your way out of demographic decline

Lestijärvi is known as mainland Finland’s smallest municipality (that is if you exclude the autonomous Åland Islands region), counting just 680 inhabitants. It now may also become known as one of the most financially ruined ones in the country. For the past three years, it has accumulated a budget deficit of 2.7 million euros, which puts in jeopardy the provision of mandatory and basic public services to its residents.

The tiny municipality, located on a lake shore in Western Finland, has been suffering from the scourge of depopulation akin to many other rural regions in the Nordic country and in Europe overall. And much like other shrinking towns, the Lestijärvi government decided to get creative about finding a solution and provide some incentive to make people, especially young people, stay or move in from another place.

That’s how Lestijärvi made headlines 12 years ago and has occasionally resurfaced in the media since then thanks to its so-called ‘baby bonus’. In essence, that included dispensing a payment of 10,000 euros to couples who decided to have a new child and become formal residents.

The scheme worked by spreading out the payments over a decade, making them a sort of New Year’s Eve bonus of 1,000 euros. That would ensure that the couple had an incentive to stay put and keep raising the child locally. This resulted in

41 new babies four years later

and a cost of 410,000 euros. As the pilot project was meant to last four years at its end the authorities concluded that it had been unsuccessful and ineffective as a tool of stimulating sustainable population growth.

The experiment showed that there would be significant swings in the number of new couples deciding to have a baby or settle in the municipality during the four years.

However, it wasn’t that payout scheme that was cited as the main reason behind the critical financial situation. It is after all the decreasing number of inhabitants that also signifies less taxes and economic activity in the town, which as a result makes it more expensive to support each of the remaining residents with basic public services.

Lestijärvi had to take out loans, to the tune of 10.6 million euros last year alone. That works out to about 15,500 euros per resident — well above the average for Finnish municipalities and more costly than paying for a new baby.