Does Family Income Matter for Schooling Outcomes? Using Adoptees as a Natural Experiment

One would expect that family income is an important positive factor in children's school attainment. However, evidence is often tainted by the lack of control for parental ability, since at least a portion of ability is transferred genetically to children. This paper uses a sample of adopted children and offers genetically unbiased estimates. We further correct for biases arising from unobserved parenting qualities and from parents' differentiation between their own birth and adopted children. Family income still has a significant effect. It implies that high ability children in low income families face binding credit constraints that society may wish to relieve. Copyright 2005 Royal Economic Society.