The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks
44 Pages Posted: 12 Oct 2010
How do shocks to parental income drive adolescent human capital, including years of schooling, high school dropout, university attendance, IQ and health? A structural model decomposes household shocks into permanent and transitory components, then the effect of shocks at age 1-16 is estimated for 600,000 Norwegian children. The effect of permanent shocks declines ﾖ and of transitory shocks is small and constant across child age, suggesting parents optimise similarly to consumption. However there is a lower effect of transitory shocks for liquidity constrained parents. An interpretation is that these parents use income shocks for essential consumption rather than investment.
Keywords: households, children, human capital
JEL Classification: D12, J13
Suggested Citation: Suggested Citation