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Correlation, Consumption, Confusion, or Constraints: Why do Poor Children Perform so Poorly?

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.

Authors: 
Elizabeth Caucutt, Western University Canada
Lance Lochner, University of Western Ontario
Youngmin Park, University of Western Ontario
Publication Date: 
March, 2015
HCEO Working Groups: 
Publication Status: 
Document Number: 
2015-005
File Description: 
First version, March, 2015