Fiscal benefits: pre-K pays for itself in the long-run

As I discuss in my new book, From Preschool to Prosperity, pre-K and other early childhood programs provide important “fiscal benefits”. By “fiscal benefits”, I mean increases in tax revenue or reductions in needed spending, even at the same tax rates and with the same spending policies. These fiscal benefits allow governments to lower tax rates without cutting public services, or to increase public services without increasing tax rates, either of which will benefit taxpayers.

Fiscal benefits of early childhood programs occur through several mechanisms. In the short run, the most important fiscal benefit is the reduction in special education costs. Special education is very expensive, costing as much as $10,000 per year per child. High-quality pre-K leads to significant reductions in special ed assignments. However, these reductions vary greatly from study to study, ranging from 23 to 86 percent. Although all such reductions could yield significant cost savings, especially given that special ed assignments tend to persist over most of a child’s K-12 career, the wide range means there is some uncertainty about the exact magnitude of these shorter-term cost savings. (See ReadyNation for more exploration for the potential for special ed cost-savings for financing pre-K programs.)

In the longer run, a wider variety of fiscal benefits become important. These fiscal benefits include: savings in prison costs and criminal justice system costs due to the effects of early childhood programs in reducing crime; increases in tax revenue at the same tax rates due to higher earnings; reductions in welfare costs due to higher earnings. These longer-run fiscal benefits also vary greatly from study to study. For example, in the Abecedarian study of child care and pre-K from birth to age 5, there were no significant reductions in crime. This may reflect that the control group in this study also had lower crime rates. Therefore, the fiscal benefits of early childhood programs may be greater if the programs are targeted at groups that are likely to have more substantial problems, such as involvement with the criminal justice system.

A variety of simulation studies find that in the long-run, the fiscal benefits of pre-K are sufficient for such programs to pay for themselves. However, the studies vary in how long it takes for pre-K programs to become self-financing. Lynch’s work suggests that pre-K breaks even fiscally about 9 years after the program is begun. In contrast, Dickens and Baschnagel conclude that pre-K breaks even fiscally about 49 years after the program is begun. These different break-even periods reflect different assumptions about program costs and program effects.

The challenge for public policy is that policymakers make decisions in the short-run and often take a short-run perspective. Early childhood programs require short-run investments, and aren’t self-financing immediately. However, if policymakers can be encouraged to take a longer-run perspective, early childhood programs can help improve the long-run budget position of all levels of government, federal, state and local.

Government’s goal is not to make money. However, government policymakers and the public should be concerned about fiscal commitments that might yield escalating costs over time. In the case of early childhood programs, over time the fiscal resources needed to finance these investments will diminish, and eventually the programs will help either reduce taxes or finance other public services. In the meantime, these programs will provide important benefits, both to participating children and families, and to the national economy.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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