The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks

44 Pages Posted: 12 Oct 2010

See all articles by Emma Tominey

Emma Tominey

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Abstract

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

Tominey, Emma, The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks. IZA Discussion Paper No. 5225, Available at SSRN: https://ssrn.com/abstract=1690063

Emma Tominey (Contact Author)

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

12 Priory Road
Bristol BS8 1TN
United Kingdom
+44 117 928 9019 (Phone)

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