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Intertemporal Equivalence Scales: Measuring the Life-Cycle Costs of Children

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  • Paul Blacklow

Abstract

This paper provides a preliminary investigation into the lifetime cost of children upon a household's lifetime wealth. By comparing the lifetime cost function of a household with children compared to the lifetime cost function of a household without children, an intertemporal equivalence scale can be constructed. By allowing the rate of time preference to vary according to demographics, more specifically with the number of children, the demographic effect on intertemporal allocations can be examined. Solving the model as a function of wealth allows the estimation of the rate of time preference and lifetime equivalence scale in a single cross section of data without the need for panel data on expenditures. The model is estimated for Australian data and finds that households with children have significantly higher rates of time preference than those without

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File URL: http://repec.org/esAUSM04/up.16629.1077859787.pdf
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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 249.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:249

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Keywords: Equivalence Scales; Intertemporal Cost Function;

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  1. Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
  2. Banks, James & Blundell, Richard & Preston, Ian, 1994. "Life-cycle expenditure allocations and the consumption costs of children," European Economic Review, Elsevier, vol. 38(7), pages 1391-1410, August.
  3. Browning, Martin, 1992. "Children and Household Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1434-75, September.
  4. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  5. Muellbauer, John, 1974. "Household composition, Engel curves and welfare comparisons between households : A duality approach," European Economic Review, Elsevier, vol. 5(2), pages 103-122, August.
  6. Keen, Michael, 1990. "Welfare analysis and intertemporal substitution," Journal of Public Economics, Elsevier, vol. 42(1), pages 47-66, June.
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