Cost-Benefit Analysis under Alternative Assumptions
| Universal K (1) | Uni. Pre-K (2) | Tar. Pre-K (3) | p: Uni. = Tar. (4) | |
|---|---|---|---|---|
| Panel A: Benefit-to-Cost | ||||
| 1. Program outlays = per-pupil K-12 spending | ||||
| Cost = program outlays | 1.98 (0.45) | 1.39 (0.77) | −0.18 (1.03) | 0.16 |
| [0.03] | [0.61] | [0.25] | ||
| Cost = net program outlays | 2.96 (0.68) | 1.85 (1.02) | −0.24 (1.32) | 0.15 |
| [0.00] | [0.41] | [0.35] | ||
| 2. Program outlays = p.p. Head Start spending | ||||
| Cost = program outlays | n.a. | 2.17 (1.20) | −0.27 (1.50) | 0.14 |
| [0.33] | [0.40] | |||
| Cost = net program outlays | n.a. | 3.52 (1.94) | −0.40 (2.20) | 0.12 |
| [0.20] | [0.52] | |||
| Panel B: Marginal Value of Public Funds (MVPF) | ||||
| 1. Program outlays = per-pupil K-12 spending | 3.94 (1.63) | 1.96 (1.39) | −0.24 (0.99) | 0.14 |
| [0.07] | [0.49] | [0.21] | ||
| 2. Program outlays = p.p. Head Start spending | n.a. | 4.27 (4.19) | −0.39 (1.58) | 0.25 |
| [0.43] | [0.38] | |||
Source: U.S. Department of Education, National Center for Education Statistics, Early Childhood Longitudinal Study, Birth Cohort (ECLS-B) of children born in calendar year 2001, “Children’s Birth Certificates” (collection at nine months), “Parent–Guardian Interviews,” (collection at 48 months), “Direct Child Assessments,” “Early Care and Education Providers,” and “School Questionnaires” (collection at kindergarten entry).
Notes: Benefit-to-cost ratios and the MVPF calculated under two assumptions: per-pupil program outlays are equal to per-pupil K–12 spending (an upper bound for pre-K programs) and per-pupil program outlays are to per-pupil Head Start spending. For the benefit-to-cost ratio, benefits are calculated by multiplying the preferred IVestimates of the per-pupil attendance impact on test scores (with additional controls, low-income subsample in the case of targeted pre-K) by the predicted effect of a one standard deviation increase in early life test scores on lifetime earnings; net costs subtract fiscal savings from substitution from Head Start and from other private center-based care. For the MVPF, the beneficiary’s marginal willingness to pay sums predicted earnings impacts net-of-taxes and the transfer to parents from substitution from other private center-based care; net government costs subtract the fiscal externalities from substitution from Head Start and predicted tax revenues from per-pupil program outlays. Throughout, I assume a one standard deviation increase in test scores yields a 10 percent increase in earnings, that targeted pre-K attendees have lifetime earnings approximately 80 percent of those for the average child, and that the PDVof lifetime earnings at age 12 is on average $522,000 (in 2010 dollars, from Chetty et al., 2011). I also assume a discount rate of 3 percent to calculate PDVs of lifetime earnings at age five (Column 1) and age four (Columns 2–3), a tax rate of 20 percent, and a per-pupil annual price of private center-based care equal to approximately $5,000, based on Laughlin (2013) calculations from the Survey of Income and Program Participation. Per-pupil K–12 and Head Start spending is from Barnett et al. (2006) and corresponds to the 2005–2006 for the relevant states. Standard errors (in parentheses) are calculated using the delta method; p-values in brackets test of whether the ratio is equal to one.