The Impact of Family Income on Child Achievement

56 Pages Posted: 1 Jun 2005 Last revised: 28 Apr 2021

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)

Date Written: April 2005

Abstract

Understanding the consequences of growing up poor for a child's well-being is an important research question, but one that is difficult to answer due to the potential endogeneity of family income. Past estimates of the effect of family income on child development have often been plagued by omitted variable bias and measurement error. In this paper, we use a fixed effect instrumental variables strategy to estimate the causal effect of income on children's math and reading achievement. Our primary source of identification comes 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. Using a panel of over 6,000 children matched to their mothers from National Longitudinal Survey of Youth datasets allows us to address problems associated with unobserved heterogeneity and endogenous transitory income shocks as well as measurement error in income. Our baseline estimates imply that a $1,000 increase in income raises math test scores by 2.1% and reading test scores by 3.6% of a standard deviation. The results are even stronger when looking at children from disadvantaged families who are affected most by the large changes in the EITC, 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 (April 2005). NBER Working Paper No. w11279, Available at SSRN: https://ssrn.com/abstract=711885

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

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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