Abstract
A natural experiment in education on Israeli kibbutzim, where investment in human capital is equal for all children, allows us to differentiate between the effect on children’s grades of genetics and home environment on the one hand and of material resources invested in education on the other hand. In addition, comparing the educational achievements we find no difference among children whose parents have more than 12 years of schooling. However, the average grade of children whose parents have 12 years of schooling or less in kibbutzim is 0.25 of a standard deviation higher than in cities. This difference can be attributed to the higher investment in human capital in kibbutzim, implying that more public resources should be allocated to the education of children from low-income families.