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Friedman, and Rockoff (2011) find the financial value (the net present value
at age 12 of the discounted increase in lifetime earnings) of a standard deviation
increase in test scores to be $46,190 per grade.
While it may not be surprising that human capital interventions have
long-run returns, recent studies have also found intergenerational effects
on child outcomes from tax or near-cash transfers to their parents. That is,
recent evidence suggests that government transfers that ameliorate child
poverty by increasing family income have lasting, long-run benefits in terms
of better child outcomes. For example, Hoynes, Schanzenbach, and Almond
(2013) study the initial rollout of the Food Stamp (now SNAP) program
between its initial pilot in 1961 and 1975. While Food Stamps are distributed
as vouchers for food purchases, since their amount is generally less than
households spend on food, the vouchers likely affect family behavior in the
same manner as increased cash income (Hoynes and Schanzenbach 2009).
Hoynes, Schanzenbach, and Almond find that exposure to Food Stamps led
to improvements in adult health (reductions in the incidence of high blood
pressure and obesity) and, for women, increased economic self-sufficiency.
Similarly, Dahl and Lochner (2012) and Chetty, Friedman, and Rockoff
(2011) find that family receipt of additional income from refundable tax
credits improves the achievement test scores of children in the family.
Chetty, Friedman, and Rockoff estimate that the implied increase in adult
earnings due to improved achievement as a child is on the same order of
magnitude, and probably greater, than the value of the tax expenditures.
The results discussed above highlight the crucial fact that government
expenditures on the safety net have a strong economic justification. Not
only do they help to propel struggling adults back onto their feet and protect
them and their families from hardship, they improve opportunity and the
adult outcomes of their children. As such, the poverty-reducing impact of
these programs constitutes an important investment opportunity. To give a
sense of the magnitude of this opportunity, Holzer et al. (2008) estimate the
cost of childhood poverty at about $500 billion (in 2007 dollars) or about
4 percent of gross domestic product (GDP) annually in terms of foregone
earnings, increased costs of crime, and higher health expenditures and lower
health.
While the Holzer et al. study is correlational (though it attempts to
correct for hereditary components of the intergenerational income correlation),
the concern over bias in this estimate is overwhelmed by its
magnitude. Based on Census Bureau estimates, the total poverty gap—the
shortfall between family resources and the SPM poverty thresholds—among
all families with children is about $59.8 billion in 2012, or 0.37 percent of
GDP. Even if the Holzer et al. estimate was double the “true” causal effect of
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