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

TLDR

The largest changes in the Earned Income Tax Credit raised family income by up to 20 percent, or about $2,100, between 1993 and 1997. Using an instrumental variables strategy, we estimate the causal effect of income on children's math and reading achievement. Our identification derives from the large, nonlinear changes in the Earned Income Tax Credit. A $1,000 increase in income raises combined math and reading test scores by 6 % of a standard deviation in the short run, with larger gains for disadvantaged children and robustness across specifications. JEL codes: H24, H31, I21, I38, J13.

Abstract

Using an instrumental variables strategy, we estimate the causal effect of income on children's math and reading achievement. Our identification derives from the large, nonlinear changes in the Earned Income Tax Credit. The largest of these changes increased family income by as much as 20 percent, or approximately $2,100, between 1993 and 1997. Our baseline estimates imply that a $1,000 increase in income raises combined math and reading test scores by 6 percent of a standard deviation in the short run. Test gains are larger for children from disadvantaged families and robust to a variety of alternative specifications. (JEL H24, H31, I21, I38, J13)