Families face a trade-off when deciding how to allocate time between working and parenting. This decision can impact child development. In this paper, we study the effect of family income and maternal hours worked on child development. We exploit the longitudinal variation in the Earned Income Tax Credit benefits and in shocks on local labor market conditions as instruments to overcome the endogeneity of income and hours worked. We find evidence of a trade-off between the income effect (a surge in economic resources) and the substitution effect (less parental time) on child development. An additional $1,000 in family income improves cognitive development by 4.4 percent of a standard deviation but has no effect on behavioral development. A yearly increase of 100 work hours negatively affects cognitive and behavioral development by approximately 6 percent of a standard deviation. We find that the substitution effect dominates the income effect when the hourly wage is below $13.50.
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