The Macroeconomic Consequences of Early Childhood Development Policies

Daruich, Diego

doi:10.20955/wp.2018.029

Working Paper

The Macroeconomic Consequences of Early Childhood Development Policies

Abstract: To study long-run large-scale early childhood policies, this paper incorporates early childhood investments into a standard general-equilibrium (GE) heterogeneous-agent overlapping-generations model. After estimating it using US data, we show that an RCT evaluation of a short-run small-scale early childhood program in the model predicts effects on children's education and income that are similar to the empirical evidence. A long-run large-scale program, however, yields twice as large welfare gains, even after considering GE and taxation effects. Key to this difference is that investing in a child not only improves her skills but also creates a better parent for the next generation.

Keywords: Inequality; intergenerational mobility; early childhood development;

JEL Classification: J13; J24; J62;

https://doi.org/10.20955/wp.2018.029