NBER Working Paper Series: Working Paper 14624, Milligan, K., & Stabile, M. National Bureau of Economic Research, 2008

We review existing research and policy evidence about income as an essential component to meeting children’s basic needs—that is, income represented as the purest monetary transfer for increasing the purchasing power of low income families. Social scientists have made great methodological strides in establishing whether income has independent effects on the cognitive development of low-income children. Our review of that research suggests that a $1,000 increase in income has positive, but small, effects on children, rarely exceeding 1/10th of a standard deviation change in outcomes for children. We argue that researchers are well-positioned for more rigorous investigations about how and why income affects children, but only first with thoughtful and creative regard for conceptual clarity, and on understanding income’s potentially inter-related influences on socio-emotional development, mental, and physical health. We also argue for more focus on the effects of income transfers, including when conditional on employment, as compared to more targeted direct investments in children. We end with a description of two-generation and cafeteria-style programs as the frontiers of the next generation in income-enhancement policies, and with the promise of insights from behavioral economics.

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