Income Risk and Household Schoo ling Decisions in Burkina Faso

study the effects of uncertainty in future income stream on household schooling decisions. The intuition is that households that face a more volatile income stream have more incentives to build up a buffer stock to insure against unforeseen adverse shocks, and non-enrollment can be part of such strategy. While there is a large literature which explores how negative income shocks impact human capital accumulation (especially education) when financial markets are incomplete and households can neither insure nor borrow to smooth their consumption, there has been little research on the cumulative effects of (perceived) income uncertainty on child education. This paper fills this gap on the literature which focuses on income shocks and education in developing countries. The empirical work uses data from rural Burkina Faso, an environment where school enrollment rates are low and households face frequent income shocks. Controlling for current economic shocks, household wealth levels and child characteristics, I find that income uncertainty reduces a number of educational outcomes, including current enrollment status, education expenditures per child, the number of years of education completed and the probability of having been ever enrolled. The estimation results suggest that income uncertainty might have large welfare costs in terms of human capital than implied by studies which focus on the ex-post response to economics shocks