Government Spending on Children and Equality of Opportunity

Susan Mayer, University of Chicago
Leonard M. Lopoo, Syracuse University

In this paper we use data from the Panel Study of Income Dynamics and the U.S. Census of Governments as well as population estimates from the U.S. Bureau of the Census to assess whether the elasticity of children’s income, measured when they were adults, with respect to parents’ income, measured when their children were growing up, is related to how much states in the United States spend per child on redistribution. We take the intergenerational elasticity as a proxy for equality of opportunity and state spending as a measure of government investment in children. We hypothesize that states that spend more on children purchase more fundamental human capital, such as education, making parental resources less important to children’s economic success as adults. We find support for this hypothesis with high-spending states having greater intergenerational mobility compared to low-spending states.