Working Paper: NBER ID: w30373
Authors: Andrew C. Barr; Jonathan Eggleston; Alexander A. Smith
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.
Keywords: cash transfers; child outcomes; social mobility; income transfer policies
JEL Codes: H02; H24; H31; I2; I21; I3; I38; J13; J24; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash transfer eligibility (I38) | family liquidity (D14) |
| family liquidity (D14) | family income (D31) |
| family income (D31) | children's long-run outcomes (I21) |
| cash transfers (F24) | family income (D31) |
| cash transfers (F24) | young adult earnings (J31) |
| family income during infancy (J13) | educational outcomes (I26) |
| educational outcomes (I26) | young adult earnings (J31) |
| being born prior to January 1 (J19) | child outcomes (J13) |
| cash transfers (F24) | tax revenues (H29) |