(Illustration by Adam McCauley)
In recent years, a growing body of behavioral and social science research has stressed the importance of early childhood care and education for family and societal well-being. A sweeping study, Baby’s First Years, is an ongoing, interdisciplinary collaboration among researchers at six institutions, designed to “assess the impact of poverty reduction on family life and infant and toddlers’ cognitive, emotional, and brain development.” The study’s initial findings have already confirmed that some policies targeting young children can have profound positive long-term effects.
A new paper by Andrew Barr, a professor of economics at Texas A&M University; Jonathan Eggleston, an economist at the US Census Bureau; and Alexander A. Smith, a professor of economics at the US Military Academy, West Point, adds to this body of research. Specifically, it shows that an infant’s first year of life is a critical moment when additional liquidity, even a small cash transfer, to low-income, first-time parents can make an enormous difference to the long-term well-being of their children.
The researchers examined eligibility for the Earned Income Tax Credit, drawing on a sample of low-income families whose children were born around the January 1 threshold. Focusing on the period 1993 to 1998 and tracking two groups—those eligible for cash benefits in the child’s first year of life and those with a child born on the other side of the January 1 cutoff (making them ineligible until after their first birthday)—the researchers saw increases in parental earnings and suggestive evidence of increases in marital stability, both of which likely contributed to better outcomes for children in the first group. By exploiting tax data, they were able to follow children into adulthood to estimate the effects of extra resources in the first year. The data showed a significant boost—1 to 2 percent—in the earnings of children whose families received the cash transfer in the first year of life, more than making up for the government’s expenditure.
“The size of the transfer in dollar terms is not huge, but relative to the average earnings in the families we studied, it’s significant,” Andrew Barr says. “And it comes at a time of heightened stress after the birth of a child, when earnings might be lower.”
The benefit that families received amounted to about $1,300, or 10 percent of their earned income. When lower-income households face negative shocks, such as a medical bill or sudden unemployment, even a small benefit reduces financial stress and provides additional support that can improve outcomes of children later in life, according to Barr and his colleagues.
“Although a growing number of causal studies have linked income increases to improvements in children’s health, behavior, and school success, this is one of the first to investigate the effect of family income increases in the first year of life,” says Greg J. Duncan, an economist and Distinguished Professor in the School of Education at the University of California, Irvine. “We know that children’s development is particularly sensitive to early-life adversity. This study shows that mitigating early-life economic adversity appears to confer lifelong advantages.”
Alongside US Census data, the researchers scrutinized North Carolina administrative schooling data to understand the medium-term effects of the cash transfer. This separate data source allowed the researchers to look at test scores, suspensions, and graduation rates, all of which improved for children whose families received the benefit. Their findings helped explain the magnitude of effects they saw for increased earnings later in life.
The researchers’ investigation suggests that child-related tax benefits should be available immediately, rather than structured according to when the tax year rolls over. “There is compelling evidence that this early period—the transition to parenthood—really matters,” Barr says. “We could still use more research to study the effects of potential benefits for the second or third child, or whether it’s the transition to parenthood where the impact is greatest.” Higher-income families also receive tax benefits, Barr explains, usually through the dependent exemption, but these families are often less liquidity constrained, which means similar long-term changes are not nearly as discernible, if at all.
The impact of the benefit in the first year of life was even more pronounced for males, the researchers also found. Some studies have indicated that the early childhood environment exerts a greater influence on boys, they write, but other factors, such as marriage age and the relative share of earnings of females who jointly file, might explain gender differences. To provide conclusive evidence, future research will be needed, Barr says.
Andrew Barr, Jonathan Eggleston, and Alexander A. Smith, “Investing in Infants: The Lasting Effects of Cash Transfers to New Families,” The Quarterly Journal of Economics (2022).
Read more stories by Daniela Blei.