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The Macroeconomic Consequences of Early Childhood Development Policies

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  • Diego Daruich

Abstract

To study long-run large-scale early childhood policies, this paper incorporates early childhood investments into a standard general-equilibrium (GE) heterogeneous-agent overlapping-generations model. After estimating it using US data, we show that an RCT evaluation of a short-run small-scale early childhood program in the model predicts effects on children's education and income that are similar to the empirical evidence. A long-run large-scale program, however, yields twice as large welfare gains, even after considering GE and taxation effects. Key to this difference is that investing in a child not only improves her skills but also creates a better parent for the next generation.

Suggested Citation

  • Diego Daruich, 2018. "The Macroeconomic Consequences of Early Childhood Development Policies," Working Papers 2018-29, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2018-029
    DOI: 10.20955/wp.2018.029
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    Cited by:

    1. Emily Moschini, 2019. "Child Care Subsidies with One- and Two-Parent Families," 2019 Meeting Papers 42, Society for Economic Dynamics.
    2. Bolt, Uta & French, Eric Baird & Maccuish, Jamie & ODea, Cormac, 2021. "The Intergenerational Elasticity of Earnings: Exploring the Mechanisms," CEPR Discussion Papers 15975, C.E.P.R. Discussion Papers.
    3. Fuchs-Schündeln, Nicola & Krueger, Dirk & Ludwig, Alexander & Popova, Irina, 2020. "The long-term distributional and welfare effects of Covid-19 school closures," SAFE Working Paper Series 290, Leibniz Institute for Financial Research SAFE.
    4. Seshadri, Ananth & Zhou, Anson, 2022. "Intergenerational mobility begins before birth," Journal of Monetary Economics, Elsevier, vol. 129(C), pages 1-20.
    5. Diego Daruich & Julian Kozlowski, 2020. "Explaining Intergenerational Mobility: The Role of Fertility and Family Transfers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 220-245, April.
    6. Luiz Brotherhood & Bernard Herskovic & Joao Ramos, 2022. "Income-based affirmative action in college admissions," UB Economics Working Papers 2022/425, Universitat de Barcelona, Facultat d'Economia i Empresa, UB School of Economics.
    7. World Bank, 2019. "World Development Report 2019 [Rapport sur le développement dans le monde 2019]," World Bank Publications - Books, The World Bank Group, number 30435, November.
    8. Yum, Minchul, 2016. "Parental time investment and intergenerational mobility," Working Papers 16-06, University of Mannheim, Department of Economics.
    9. Nicola Fuchs-Schündeln & Dirk Krueger & André Kurmann & Etienne Lalé & Alexander Ludwig & Irina Popova, 2021. "The Fiscal and Welfare Effects of Policy Responses to the Covid-19 School Closures," NBER Working Papers 29398, National Bureau of Economic Research, Inc.
    10. Youngsoo Jang & Minchul Yum, 2020. "Aggregate and Intergenerational Implications of School Closures: A Quantitative Assessment," CRC TR 224 Discussion Paper Series crctr224_2020_234v2, University of Bonn and University of Mannheim, Germany.
    11. Prada, Maria & Rucci, Graciana & Urzua, Sergio, 2019. "Training, Soft Skills and Productivity: Evidence from a Field Experiment," IZA Discussion Papers 12447, Institute of Labor Economics (IZA).
    12. Matthias Doepke & Giuseppe Sorrenti & Fabrizio Zilibotti, 2019. "The Economics of Parenting," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 55-84, August.
    13. Sina T. Ates & Felipe E. Saffie, 2021. "Fewer but Better: Sudden Stops, Firm Entry, and Financial Selection," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 304-356, July.
    14. Juan Chaparro & Aaron Sojourner & Matthew Wiswall, 2020. "Early Childhood Care and Cognitive Development," Working Papers 2020-012, Human Capital and Economic Opportunity Working Group.
    15. Brant Abbott, 2022. "Incomplete Markets and Parental Investments in Children," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 104-124, April.
    16. Diego Daruich & Raquel Fernández, 2020. "Universal Basic Income: A Dynamic Assessment," NBER Working Papers 27351, National Bureau of Economic Research, Inc.
    17. Iacopo Morchio, 2022. "Policies for Early Childhood Skills Formation: Accounting for Parental Choices and Noncognitive Skills," Bristol Economics Discussion Papers 22/755, School of Economics, University of Bristol, UK.
    18. Eckert,Fabian & Kleineberg,Tatjana Karina, 2021. "Saving the American Dream ? Education Policies in Spatial General Equilibrium," Policy Research Working Paper Series 9574, The World Bank.
    19. Joachim Freyberger, 2021. "Normalizations and misspecification in skill formation models," Papers 2104.00473, arXiv.org, revised Jul 2022.
    20. Brant Abbott, 2022. "Incomplete Markets and Parental Investments in Children," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 104-124, April.
    21. Prada, María Fernanda & Rucci, Graciana & Urzúa, Sergio, 2019. "Training, Soft Skills and Productivity: Evidence from a Field Experiment in Retail," IDB Publications (Working Papers) 9647, Inter-American Development Bank.
    22. Matsuda, Kazushige, 2020. "Optimal timing of college subsidies: Enrollment, graduation, and the skill premium," European Economic Review, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    Inequality; intergenerational mobility; early childhood development;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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