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

Gordon Dahl and Lance Lochner

No 14599, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H53 I32 I38 J13 J18 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (44)

Published as Gordon B. Dahl & Lance Lochner, 2012. "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit," American Economic Review, American Economic Association, vol. 102(5), pages 1927-56, August.

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Journal Article: The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit (2012)
Working Paper: The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit (2012)
Working Paper: The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit (2011)
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