Investing in Infants: The Lasting Effects of Cash Transfers to New Families

Andrew Barr, Jonathan Eggleston () and Alexander Smith

No 30373, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide new evidence that cash transfers following the birth of a first child can have large and long-lasting effects on that child’s outcomes. We take advantage of the January 1 birthdate cutoff for U.S. child-related tax benefits, which results in families of otherwise similar children receiving substantially different refunds during the first year of life. For the average low-income single-child family in our sample this difference amounts to roughly $1,300, or 10 percent of income. Using the universe of administrative federal tax data in selected years, we show that this transfer in infancy increases young adult earnings by at least 1 to 2 percent, with larger effects for males. These effects show up at earlier ages in terms of improved math and reading test scores and a higher likelihood of high school graduation. The observed effects on shorter-run parental outcomes suggest that additional liquidity during the critical window following the birth of a first child leads to persistent increases in family income that likely contribute to the downstream effects on children’s outcomes. The longer-term effects on child earnings alone are large enough that the transfer pays for itself through subsequent increases in federal income tax revenue.

JEL-codes: H24 H31 I2 I21 I3 I38 J13 J24 J62 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-edu and nep-lma
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Published as Andrew Barr & Jonathan Eggleston & Alexander A Smith, 2022. "Investing in Infants: the Lasting Effects of Cash Transfers to New Families," The Quarterly Journal of Economics, vol 137(4), pages 2539-2583.

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