Head Start Funding Expansions

The net cost is the sum of the direct costs and any fiscal externalities. The direct costs in this setting are $500 per child. The fiscal externalities result from the impact of increased earnings from head start, which in turn generate tax revenue.

To construct this, Kose (2021) uses a forecasting method employed in Kline and Walters (2016), which is in turn motivated by results in Chetty et al. (2011), that earnings increase by 10 percent for every standard deviation increase in test scores. To translate this earnings increase in percentage terms into a level impact on costs, the author notes that for the setting (4-year-old children in Texas who are eligible for free/reduced lunch), the present value of earnings for the relevant population is approximately $307,000. Combining, the test score impact suggests an increase in lifetime earnings of $950 (discounted at a 3% real interest rate). At a 20% tax rate, the government collects an additional $190 in tax revenue over the child’s lifetime. Putting this together implies a net cost to the government of $500 – $190 = $310 per child.

The MVPF of a $500 per child increase in Head Start funding is then the willingness to pay divided by the total costs: $760 / $310 = 2.45.

The author also notes that this estimate could be a lower bound, as it omits other potential cost savings. In particular, the paper finds statistically insignificant but negative impacts on the likelihood that a student is in special education. Incorporating these effects could further increase the MVPF.