The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit

Abstract

Past estimates of the effect of family income on child development have often been plagued by endogeneity and measurement error. In this paper, we use two simulated instrumental variables strategies to estimate the causal effect of income on children's math and reading achievement. Our identification derives from the large, non-linear changes in the Earned Income Tax Credit (EITC) over the last two decades. The largest of these changes increased family income by as much as 20 percent, or approximately $2,100. Using a panel of almost 5,000 children matched to their mothers from National Longitudinal Survey of Youth datasets allows us to address problems associated with unobserved heterogeneity, endogenous transitory income shocks, and measurement error in income. Our baseline estimates imply that a $1,000 increase in income raises combined math and reading test scores by 6 percent of a standard deviation in the short run. The gains are larger for children from disadvantaged families and are robust to a variety of alternative specifications. We find little evidence of long-run income effects, with most of the effects disappearing after one year.

Transgenerational effects of childhood conditions on third generation health and education outcomes

“…To find an answer to this question, several recent studies have examined the intergenerational effects of policy changes (see e.g. Oreopoulos et al, 2006, Dahl and Lochner, 2012, Black and Devereux, 2011, while others have focused the effects of health-related shocks on child outcomes (Almond et al, 2012, Andreella et al, 2014. Yet, multigenerational studies spanning more than two generations are rare in social sciences and the existing studies mostly investigate the persistence of socio-economic variables (Lindahl et al, 2014, Sacerdote, 2005, Behrman and Taubman, 1985, Clark, 2014.…”

Genes, Education, and Labor Market Outcomes: Evidence from the Health and Retirement Study

“…Taken 32 To put this into perspective, the average difference in imputed father's income between the high and low SES individuals based on the father's income measure is approximately $14,000. Using evidence from the Earned Income Tax Credit, Dahl and Lochner (2012) find that a $1,000 increase in family income contemporaneously raises a combined reading and math achievement score for children by 6 percent of a standard deviation. If the degree of association between parental resources and the genetic score matched this association between family income on achievement scores, then one would expect that individuals in our sample from high and low income households should differ in their average EA score by about 84 percent of a standard deviation.…”

The contribution of Bolsa Família to the educational achievement of economically disadvantaged children in Brazil

“…more engagement in schools compared to AFDC families. In another study using data from the NLSY and the Earned Income Tax Credit (EITC) as a natural-experiment, Dahl and Lochner (2008) estimate a gain of 6% of an s.d. in a combined score of mathematics and reading after a US$ 1,000 annual increase in income, with larger gains for more disadvantaged children.…”