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This paper provides new causal evidence on the effects of grade retention on educational
attainment, behavioral outcomes, and labor market performance by analyzing Texas’s reading
test-based retention policy. Using a fuzzy regression discontinuity design, I find that thirdgrade
retention significantly reduces annual earnings at age 26 by $3,477 (19%). While temporarily
improving test scores, retention increases absenteeism, violent behavior, and juvenile
crime, and reduces the likelihood of high school graduation. Moreover, retained students
exhibit higher community college enrollment but lower public university attendance, though
neither estimate is statistically significant.
