INTRODUCTION – This paper assesses the effects of adverse economic shocks on children’s mental health. We rely on the Brazilian High Risk Cohort Study for Mental Conditions, which provides an unprecedented array of data on psychopathology, life events, family medical history as well as parental behavior and polygenic scores for mental disorders over a 10 year period. Our empirical strategy exploits parental job loss events over time in a differences-in-differences framework. We document that parental job loss has strong and persistent negative effects on parental income and household assets. We then show that parental job loss significantly worsens children’s mental health and that this result is robust to different specifications, placebo tests and choices of measurement scales. Turning to potential mechanisms, we document significant effects on children’s exposure to abuse and neglect. Yet, these effects dissipate in later follow-ups, as do the effects on mental health outcomes. Effects do not vary with polygenic risk scores for mental disorders, suggesting that negative effects of economic distress on children’s mental health might be triggered by environmental factors to a greater extent.

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