IZA Discussion Paper No. 246

This Discussion Paper is issued within the framework of IZA's research area 7KH)XWXUH RI :RUN Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. $%675$&7 6FKRROLQJ)DPLO\\%DFNJURXQGDQGG$GRSWLRQ 'RHVV)DPLO\,QFRPHH0DWWHU" * One would expect that family income is an important positive factor in the school attainment of children. However, evidence on this relationship is often tainted by the lack of control for parental ability, since at least a portion of ability is transferred genetically to children. This paper considers empirical strategies that control for both observed and unobserved parental ability. In the end, family income still has a significant effect, which must therefore be causative. It implies that high-ability children in low-income families face binding credit constraints that society may wish to relieve. 2000) and other universities for their valuable comments.