October 2017

IZA DP No. 11106: Parental Investments in Early Life and Child Outcomes: Evidence from Swedish Parental Leave Rules

published as 'Parental Leave Benefits, Household Labor Supply, and Children's Long-Run Outcomes' in: Journal of Labor Economics, 2020, 38 (1), 261-320.

How do parental resources early in life affect children's health and schooling outcomes? We address this question by exploiting the so-called speed premium (SP) in the Swedish parental leave (PL) system. The SP grants mothers higher PL benefits for the subsequent child without the need to re-quality for benefits through pre-birth market work, if the two births occur within a pre-specified interval. The eligibility birth interval for this automatic renewal of PL benefits was set to 24 months in 1980–1985, and to 30 months since 1986. This allow us to use a Regression Discontinuity framework to study how additional parental time and monetary resources impacts both the existing and new child's educational and health outcomes. We find that maternal eligibility to the SP increases the 9th grade GPA, and the likelihood of college attendance of the first-born child, but it does not affect the secondborn. These impacts can be generalized for higher-order parities. The effects are prevalent primarily among children to high-income mothers. Impacts are driven by a combination of a persistent positive income shock, and substitution away from informal care to maternal time.