The causal effect of an income shock on children’s human capital

We investigate the causal impact of a generous unconditional cash transfer at birth on children's health and academic performance. Using rich administrative data, we take advantage of the unexpected introduction of a “baby bonus” in Spain in 2007 and implement a difference-in-discontinuity approach comparing children born in the surrounding months in different years. We find little impact of the benefit on children’s health and academic performance. In line with this, we do not find meaningful changes in household structure, maternal employment, parental time, or child-related money investments. There is evidence that the cash transfer increased household expenditure on big-ticket items. However, this increase in material resources did not enhance early childhood development in the Spanish context, characterized by a generous social safety-net system. Our results contribute to understanding which interventions are effective at fostering children’s health and human capital formation.