sanctions were associated with large, sudden reductions in households’ income that lasted for seven years.

Relying on a difference-in-difference approach and using a sub-sample of data on the Iranian Households’ Income and Expenditure (oil, gas, and energy supply industries as the treated group, and the weighted average of information, education, and health industries as the synthetic control), the empirical analysis suggests that the sanctions had significant negative impacts on both educational attainment (quantity of education) and investment in education (quality of education). First, the sanctions decreased children’s probability of attending college by 4.8 percentage points and years of schooling by 0.1 years. Second, households reduced spending on children’s education by 58% - particularly on expenditure for school tuition. This finding indicates that households respond to the shock by substituting away from higher-quality private schools towards lower-quality public schools for their children. The sanctions’ impact on children’s education is larger than implied by the income elasticity estimates from the previous literature likely because sanctions had persistent effects on parent income. Reduction in children’s education will reduce their future earnings such that affected children will experience a larger decline in their earnings than their parents.

This paper also investigates the cause of the heterogeneity. I find that the negative effect of the sanctions on children’s education is larger for children who were exposed longer to the sanctions and children at crucial ages. First, children who were more exposed to the sanction when they were of schooling age obtained fewer years of education and were less likely to go to college. Affected children did not go back to school after the sanctions were lifted. Second, the enrollment rate of children at high school dropout age (16 years old) and matriculation at a university (18 years old) decreased by 4.3 percentage points and 15.4 percentage points, respectively. These effects worsen when children reach the age of 16 and 18 at a later stage of the sanctions period.

This paper complements the literature documenting the negative effects of economic sanctions. Current studies show the negative effects of sanctions on economic growth and living standards and the humanitarian situation of the civilian population during the years of sanctions. In the case of Iran, Iran’s economy got 15-20% smaller than it would have been absent the sanctions (U.S. Treasury Secretary Jacob Lew report, 2015) that led to a reduction in the total welfare of consumers (Ezzati and Salmani (2017)) and public health (Karimi and Haghpanah (2015)). My results go beyond these studies and show that economic sanctions have long lasting consequences on children’s well-being even after they are lifted by a reduction in children’s education. Moreover, human capital is an important factor in productivity growth and economic development. These negative externalities caused by disinvestment in human capital are not documented in the current literature of adverse consequences of economic sanctions. I find that the cost estimates using only the earnings of the current generation may only capture less than half of the overall cost. This paper also adds to the literature on the effect of family income on children’s education. I find larger effects compared to previous studies because the income shock is persistent and large. Moreover, other financial resources had not been available to children over the years of sanctions.

The estimates presented in this paper suggest that although economic sanctions against Iran were successful in terms of political goals, such negative effects on human development are not ignorable. The effect of sanction on children’s education depends on the context and severity of the sanctions and how the government and households cope with this shock. However, establishing this potential negative shock to human development can edify future policy regarding the use of economic sanctions.

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