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

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  • Emma Tominey
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    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 - and of transitory shocks is small and constant across child age, suggesting parents optimise similarly to onsumption. 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.

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    Paper provided by Department of Economics, University of York in its series Discussion Papers with number 10/21.

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    Date of creation: Oct 2010
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    Handle: RePEc:yor:yorken:10/21

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    1. James J. Heckman & Seong Hyeok Moon & Rodrigo Pinto & Peter A. Savelyev & Adam Yavitz, 2009. "The Rate of Return to the High/Scope Perry Preschool Program," NBER Working Papers 15471, National Bureau of Economic Research, Inc.
    2. 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.
    3. Havnes, Tarjei & Mogstad, Magne, 2009. "No Child Left Behind: Universal Child Care and Children's Long-Run Outcomes," Memorandum 23/2009, Oslo University, Department of Economics.
    4. Jér�me Adda & James Banks & Hans-Martin von Gaudecker, 2009. "The Impact of Income Shocks on Health: Evidence from Cohort Data," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1361-1399, December.
    5. Randall K. Q. Akee & William E. Copeland & Gordon Keeler & Adrian Angold & E. Jane Costello, 2010. "Parents' Incomes and Children's Outcomes: A Quasi-experiment Using Transfer Payments from Casino Profits," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 86-115, January.
    6. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    7. Nuno Martins & Ernesto Villanueva, 2009. "Does High Cost of Mortgage Debt Explain Why Young Adults Live with Their Parents?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 974-1010, 09.
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