Reducing Inequality Through Dynamic Complementarity: Evidence from Head Start and Public School Spending

We explore whether early childhood human-capital investments are complementary to those made later in life. Using the Panel Study of Income Dynamics, we compare the adult outcomes of cohorts who were differentially exposed to policy-induced changes in pre-school (Head Start) spending and school-finance-reform-induced changes in public K12 school spending during childhood, depending on place and year of birth. Difference-in-difference instrumental variables and sibling- difference estimates indicate that, for poor children, increases in Head Start spending and increases in public K12 spending each individually increased educational attainment and earnings, and reduced the likelihood of both poverty and incarceration in adulthood. The benefits of Head Start spending were larger when followed by access to better-funded public K12 schools, and the increases in K12 spending were more efficacious for poor children who were exposed to higher levels of Head Start spending during their preschool years. The findings suggest that early investments in the skills of disadvantaged children that are followed by sustained educational investments over time can effectively break the cycle of poverty.