We o?er evidence from India that higher regional returns to primary education not only increase the likelihood that boys and girls attend school but also decrease the likelihood that they work. These relationships hold only for the top three quintiles of the income distribution and mostly for children in the age group 10–14 years. The former result suggests that liquidity constraints may not allow poorer households to respond to the economic bene?ts of education.
Policies that raise the economic bene?ts of education may increase human capital investments in households that do not rely on their children’s incomes for survival. However, low schooling and high child labour will persist among credit constrained families unless these households are provided with the economic ability to respond to these bene?ts.