Boosting poor families' income increases child achievement
22 August 2005
Supplementing the income of poor parents can significantly increase the scholastic achievement of children, the 2005 World Congress of the Econometric Society, which is hosted by UCL (University College London), will hear this week.
A study presented by Associate Professor Gordon Dahl of the University of Rochester, USA, has shown in the USA that increasing a family's annual income by just $1,000 improves maths test scores by 2.1 per cent and reading test scores by 3.6 per cent.
Previous studies on the relationship between income and education have failed to come to a consensus because it has proved difficult to untangle the adverse effect of home environments or other challenges to academic achievement.
Working with Lance Lochner of the University of Western Ontario, USA, Associate Professor Dahl used a novel method of analysing the impact of one of the largest federal anti-poverty programmes, the Earned Income Tax Credit (EITC), which provides financial assistance to low-income families.
They found that the maximum EITC credit of $4,000 further increased test scores and could raise future earnings by as much as 1-2 per cent. Associate Professor Dahl also says the UK 's tax credit system is likely to yield similar results.
"In the US one in six children currently lives in poverty, and it's a big issue in other countries too. Our research suggests that income transfers to poor families can help alleviate some of these consequences - in particular, that extra income can improve maths and reading achievement," says Associate Professor Dahl.
"Given that the explicit rationale for income support programmes, like the EITC, is often to improve the lot of children, our research provides policymakers with evidence that such programmes can have a positive impact."
The EITC programme has been operating since the mid-1990s. In 2003, it provided $37.5 billion in income benefits to 20.8 million families and individuals, lifting more children out of poverty than any other government programme. Low income families with two or more children can receive a credit of up to 40 per cent of their income while families with one child can receive a credit of up to 34 per cent.
The researchers applied a 'fixed effect instrumental variables strategy' to a panel of over 6,000 children matched to their mothers from the National Longitudinal Survey of Youth.
The strategy allowed them to isolate factors such as an adverse home environment, which might affect academic performance even if family income increases.
The same children were followed over a number of years and their performance in achievement tests between the ages of 5 and 14 was recorded. They look at how test scores changed as family income changed for each child. This eliminates any permanent changes across children in their ability or home environment - and is known as the 'fixed effects' part of the approach.
"Temporary shocks to families, such as parental depression or unemployment, are likely to jointly affect both family income and the ability to parent children," explains Associate Professor Dahl.
"This could lead to the incorrect conclusion that a drop in family income 'caused' a drop in scholastic achievement. This is where the 'instrumental variables' part of our strategy comes in. We use the dramatic increases in the EITC program in the US as an 'instrument' for changes in family income. We predict which type of families will experience the largest boost to family income as a result of the EITC increases, and see if children in these families also experience larger relative gains in their test scores.
"Our approach is very simple: the increase in the EITC was like a helicopter drop of extra money for some families more than others."
Associate Professor Gordon Dahl of the University of Rochester will present the paper, 'The impact of family income on child achievement' on Monday 22 August 2005 at 11.15- 12.45 BST
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Notes to editors:
About the World Congress of the Econometrics Society
The Econometric Society is the leading international learned society in the field of economics, and its quinquennial world congress is recognised as the most prestigious in economics. UCL is hosting the ninth Econometric Society World Congress from 18-24 August 2005, which is the first time the Congress has been held in London and has not been hosted by a UK institute for 35 years. A full copy of the programme can be accessed on the 2005 Econometric Society World Congress website: http://www.eswc2005.com/
About the UCL Department of Economics
The Chair of Political Economy at UCL was created in 1828 establishing the first Department of Economics in England . The modern department has an outstanding international reputation in key areas of current research including applied theory, microeconometrics, game theory, labour economics, development economics, macroeconomics, industrial economics and environmental economics. It is one of only four economics departments in the UK to achieve the 'double 5*' rating in the two most recent (2001) national Research Assessment Exercises (RAE).