Investing in Infants: the Lasting Effects of Cash Transfers to New Families Academic Article uri icon

abstract

  • Abstract We provide new evidence that cash transfers following the birth of a first child can have large and long-lasting effects on that childs 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% 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%2%, 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 childrens 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.

published proceedings

  • The Quarterly Journal of Economics

altmetric score

  • 183.16

author list (cited authors)

  • Barr, A., Eggleston, J., & Smith, A. A.

citation count

  • 5

complete list of authors

  • Barr, Andrew||Eggleston, Jonathan||Smith, Alexander A

publication date

  • September 2022