Family foster care or residential care: the impact of home environment on children raised in state care

This study investigates how family foster care, compared to residential care, affects the outcomes of adolescents raised in state care. Using Hungarian administrative panel data, we contribute to the literature by examining previously unmeasured adult outcomes, conditioning on a rich set of variables observed in childhood. We show that adolescents raised in a foster family have substantially better outcomes as adults. Compared to similar peers in residential care, they are more likely to complete secondary education and have lower probabilities of using mental health medication and spending extended periods without either working or studying. For girls, teenage childbirth and abortion are less likely. Oster bounds indicate that selection on unobservables would need to be implausibly strong to explain away the estimated effects. Further evidence suggests that local child protection systems with more-abundant foster parents lead to better outcomes for children raised in state care.