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Title: The Macroeconomic Consequences of Early Childhood Development Policies
Citation Type: Miscellaneous
Publication Year: 2017
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Abstract: The macroeconomic consequences of large-scale early childhood development policies depend on intergenerational dynamics, general equilibrium (GE) e ects on labor and capital markets, and the deadweight loss of raising taxes to nance the policies. To study these policies, this paper ex- tends a standard GE heterogeneous-agent overlapping-generations macro model with earnings risk and credit constraints to incorporate early childhood investments (parental time and money) and estimates it using US data. We validate the model by performing an RCT evaluation of a short-run small-scale government program that funds early childhood investments and showing that the ef- fects on children’s education and adult income in the model are similar to the empirical evidence. We then evaluate a permanent large-scale version of this early childhood program, taking into account GE and taxation e ects, and nd that it yields a 10% welfare increase (in consumption equivalence terms), reduces inequality by 7%, and increases intergenerational mobility of income by 32%—approximately enough for the US to achieve Canadian or Australian levels of inequality and mobility. Welfare gains are twice the ones obtained by a program that uses the same revenue to fund a lump- sum transfer. ey are also twice the ones obtained by introducing the same early childhood program as a short-run partial-equilibrium policy—similar to an RCT. Although GE and taxation e ects re- duce the gains by one-tenth each, the long-run change in the distribution of parental characteristics more than compensates for those reductions. Key to this welfare gain is that investing in a child not only improves her skills but also creates a be er parent for the next generation. Although earlier generations gain less, welfare gains are positive for every new generation and grow rapidly during the transition.
Url: http://www.cemfi.es/ftp/pdf/papers/Seminar/Daruich_JMP.pdf
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Authors: Daruich, Diego
Publisher: New York University
Data Collections: IPUMS CPS
Topics: Education, Other
Countries: United States