Advanced Search
MyIDEAS: Login to save this paper or follow this series

Early and Late Human Capital Investments, Borrowing Constraints, and the Family

Contents:

Author Info

Abstract

This paper investigates the importance of family borrowing constraints in determining human capital investments in children at early and late ages. We begin by providing new evidence from the Children of the NLSY (CNLSY) which suggests that borrowing constraints bind for at least some families with young children. Next, we develop an intergenerational model of lifecycle human capital accumulation to study the role of early versus late investments in children when credit markets are imperfect. We analytically establish the importance of dynamic complementarity in investment for the qualitative nature of investment responses to income and policy changes. We extend the framework to incorporate dynasties and use data from the CNLSY to calibrate the model. Our benchmark steady state suggests that roughly half of young parents and 12% of old parents are borrowing constrained, while older children are unconstrained. We also identify strong complementarity between early and late investments, suggesting that policies targeted to one stage of development tend to have similar effects on investment in both stages. We use this calibrated model to study the effects of education subsidies, loans and transfers offered at different ages on early and late human capital investments and subsequent earnings in the short-run and long-run. A key lesson is that the interaction between dynamic complementarity and early borrowing constraints means that early interventions tend to be more successful than later interventions at improving human capital outcomes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economics.uwo.ca/cibc/workingpapers_docs/wp2012/Caucutt_Lochner05.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Western Ontario, CIBC Centre for Human Capital and Productivity in its series University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers with number 20125.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:uwo:hcuwoc:20125

Contact details of provider:
Postal: CIBC Centre for Human Capital and Productivity, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/cibc_workingpapers.html

Related research

Keywords: none at present;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Diego Restuccia & Carlos Urrutia, 2002. "Intergenerational Persistence of Earnings: The Role of Early and College Education," Working Papers 0209, Centro de Investigacion Economica, ITAM.
  2. S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 2001. "Efficient Investment in Children," RCER Working Papers 481, University of Rochester - Center for Economic Research (RCER).
  3. Løken, Katrine Vellesen, 2007. "Family income and children's education: Using the Norwegian oil boom as a natural experiment," Working Papers in Economics 03/07, University of Bergen, Department of Economics.
  4. Melvin Stephens, 2008. "The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 241-252, May.
  5. Flavio Cunha & James Heckman, 2007. "The Technology of Skill Formation," NBER Working Papers 12840, National Bureau of Economic Research, Inc.
  6. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "General-Equilibrium Treatment Effects: A Study of Tuition Policy," American Economic Review, American Economic Association, vol. 88(2), pages 381-86, May.
  7. Gordon B. Dahl & Lance Lochner, 2010. "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20105, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  8. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  9. Flavio Cunha & James Heckman & Susanne Schennach, 2010. "Estimating the technology of cognitive and noncognitive skill formation," CeMMAP working papers CWP09/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  11. Loken, Katrine Vellesen & Mogstad, Magne & Wiswall, Matthew, 2010. "What Linear Estimators Miss: Re-Examining the Effects of Family Income on Child Outcomes," IZA Discussion Papers 4971, Institute for the Study of Labor (IZA).
  12. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," Cowles Foundation Discussion Papers 1887, Cowles Foundation for Research in Economics, Yale University.
  13. Daniela Del Boca & Christopher Flinn & Matthew Wiswall, 2010. "Household Choices and Child Development," Working Papers 2011-039, Human Capital and Economic Opportunity Working Group.
  14. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  15. Milligan, Kevin & Stabile, Mark, 2009. "Do Child Tax Benefits Affect the Wellbeing of Children? Evidence from Canadian Child Benefit Expansions," CLSSRN working papers clsrn_admin-2009-21, Vancouver School of Economics, revised 13 Mar 2009.
  16. Heckman, James J. & Moon, Seong Hyeok & Pinto, Rodrigo & Savelyev, Peter & Yavitz, Adam, 2009. "The Rate of Return to the High/Scope Perry Preschool Program," IZA Discussion Papers 4533, Institute for the Study of Labor (IZA).
  17. Meta Brown & John Karl Scholz & Ananth Seshadri, 2009. "A New Test of Borrowing Constraints for Education," NBER Working Papers 14879, National Bureau of Economic Research, Inc.
  18. Elizabeth M. Caucutt & Lance Lochner, 2005. "Borrowing constraints on families with young children," Proceedings, Federal Reserve Bank of Cleveland, pages 39-48.
  19. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
  20. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
  21. Petra E. Todd & Kenneth I. Wolpin, 2004. "The Production of Cognitive Achievement in Children: Home, School and Racial Test Score Gaps," PIER Working Paper Archive 04-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  22. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July.
  23. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  24. Caucutt, Elizabeth M. & Kumar, Krishna B., 2003. "Higher education subsidies and heterogeneity: a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1459-1502, June.
  25. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  26. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  27. Petra E. Todd & Kenneth I. Wolpin, 2003. "On The Specification and Estimation of The Production Function for Cognitive Achievement," Economic Journal, Royal Economic Society, vol. 113(485), pages F3-F33, February.
  28. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  29. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1719-1750, November.
  30. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
  31. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
  32. Alessi, R & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
  33. Orazio Attanasio & Pinelopi K. Goldberg & Ekaterini Kyriazidou, 2000. "Credit Constraints in the Market for Consumer Durables: Evidence from Micro Data on Car Loans," NBER Working Papers 7694, National Bureau of Economic Research, Inc.
  34. Katrine V. L�ken & Magne Mogstad & Matthew Wiswall, 2012. "What Linear Estimators Miss: The Effects of Family Income on Child Outcomes," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 1-35, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," NBER Working Papers 18782, National Bureau of Economic Research, Inc.
  2. Gianluca Violante & Giovanni Gallipoli & Costas Meghir, 2005. "Education Decisions, Equilibrium Policies and Wages Dispersion," 2005 Meeting Papers 522, Society for Economic Dynamics.
  3. Shelly Lundberg, 2013. "Educational Inequality and the Returns to Skills," Working Papers 2013-017, Human Capital and Economic Opportunity Working Group.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:uwo:hcuwoc:20125. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.