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Authors: Vitor Pereira (PUC-Rio) and Claudio Ferraz (PUC-Rio)

Abstract: High school dropout is associated with lower future income, labor market participation and self-satisfaction, among other outcomes. However, little is known about the effectiveness of policies aimed to improve academic skills and increase high school graduation rates among disadvantaged youths. In this paper, we investigate the effects of an innovative savings program in the state of Rio de Janeiro that rewards poor students for grade promotion. Rewards are deposited in a savings account and can only be withdrawn upon timely high school graduation. Exploiting the phased-in expansion of the program in a differences in differences approach, we find that program eligibility reduces drop out rates by 30% (-0.39 SD), and increases approval rates by 13% (0.57SD). Results are stronger for eligible students who open a savings account and for high school seniors.