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

43 Pages Posted: 29 Dec 2008 Last revised: 27 Jan 2009

See all articles by Gordon B. Dahl

Gordon B. Dahl

UC San Diego - Department of Economics; National Bureau of Economic Research (NBER); University of Rochester - Department of Economics

Lance Lochner

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2008

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.

Suggested Citation

Dahl, Gordon B. and Lochner, Lance, The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit (December 2008). NBER Working Paper No. w14599. Available at SSRN: https://ssrn.com/abstract=1320845

Gordon B. Dahl (Contact Author)

UC San Diego - Department of Economics ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

Lance Lochner

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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