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

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  • Gordon B. Dahl

    ()
    (University of California San Diego)

  • Lance Lochner

    ()
    (University of Western Ontario)

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 an instrumental variables strategy 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%, or approximately $2,100, between 1993 and 1997. Using a panel of roughly 4,500 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% of a standard deviation in the short-run. Test gains are larger for children from disadvantaged families and are robust to a variety of alternative specifications.

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File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Dahl_Lochner_2011_impact-family-income.pdf
File Function: First version, June 15, 2011
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File URL: http://dss.ucsd.edu/~gdahl/papers/children-and-EITC.pdf
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Bibliographic Info

Paper provided by Human Capital and Economic Opportunity Working Group in its series Working Papers with number 2011-022.

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Date of creation: Jun 2011
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Publication status: Forthcoming in American Economic Review
Handle: RePEc:hka:wpaper:2011-022

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  1. Gordon B. Dahl & Lance Lochner, 2005. "The Impact of Family Income on Child Achievement," NBER Working Papers 11279, National Bureau of Economic Research, Inc.
  2. Eric A. Hanushek & Margaret E. Raymond, 2005. "Does school accountability lead to improved student performance?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 24(2), pages 297-327.
  3. Løken, Katrine Vellesen & Mogstad, Magne & Wiswall, Matthew, 2011. "What Linear Estimators Miss: The E ects of Family Income on Child Outcomes," Working Papers in Economics 02/11, University of Bergen, Department of Economics.
  4. Valerie Lechene & Orazio Attanasio, 2002. "Tests of Income Pooling in Household Decisions," Economics Series Working Papers 106, University of Oxford, Department of Economics.
  5. Jesse Rothstein, 2010. "Teacher Quality in Educational Production: Tracking, Decay, and Student Achievement," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 175-214, February.
  6. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  7. Amalia R. Miller & Lei Zhang, 2009. "The effects of welfare reform on the academic performance of children in low-income households," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(4), pages 577-599.
  8. Ann Huff Stevens & Marianne Page & Philip Oreopoulos, 2005. "The Intergenerational Effects of Worker Displacement," Working Papers 521, University of California, Davis, Department of Economics.
  9. Kevin Milligan & Mark Stabile, 2011. "Do Child Tax Benefits Affect the Well-Being of Children? Evidence from Canadian Child Benefit Expansions," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 175-205, August.
  10. Nada Eissa & Hilary Hoynes, 2005. "Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply," NBER Working Papers 11729, National Bureau of Economic Research, Inc.
  11. Philip Oreopoulos & Marianne E. Page, 2006. "The Intergenerational Effects of Compulsory Schooling," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 729-760, October.
  12. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
  13. Petra E. Todd & Kenneth I. Wolpin, 2004. "The Production of Cognitive Achievement in Children: Home, School and Racial Test Score Gaps," PIER Working Paper Archive 04-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  14. Brian A. Jacob & Lars Lefgren & David Sims, 2008. "The Persistence of Teacher-Induced Learning Gains," NBER Working Papers 14065, National Bureau of Economic Research, Inc.
  15. Jennifer Ward-Batts, 2003. "Out of the Wallet and into the Purse: Using Micro Data to Test Income Pooling," Claremont Colleges Working Papers 2003-10, Claremont Colleges.
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