Working Paper: NBER ID: w21023
Authors: Elizabeth M. Caucutt; Lance Lochner; Youngmin Park
Abstract: The economic and social mobility of a generation may be largely determined by the time it enters school given early developing and persistent gaps in child achievement by family income and the importance of adolescent skill levels for educational attainment and lifetime earnings. After providing new evidence of important differences in early child investments by family income, we study four leading mechanisms thought to explain these gaps: an intergenerational correlation in ability, a consumption value of investment, information frictions, and credit constraints. In order to better determine which of these mechanisms influence family investments in children, we evaluate the extent to which these mechanisms also explain other important stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills.
Keywords: child achievement; family income; human capital investment; economic mobility
JEL Codes: D1; I24; I26; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental income (D31) | Child achievement (I24) |
| Intergenerational correlation in ability (D15) | Parental income (D31) |
| Parental income (D31) | Investments in children (J13) |
| Investments in children (J13) | Child achievement (I24) |
| Consumption value of investments (E20) | Investments by higher-income families (G51) |
| Poor information (D89) | Underinvestment in children (J13) |
| Credit constraints (E51) | Optimal investments in children (J13) |