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

  • Emma Tominey
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    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 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.

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    File URL: http://cee.lse.ac.uk/ceedps/ceedp120.pdf
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    Paper provided by Centre for the Economics of Education, LSE in its series CEE Discussion Papers with number 0120.

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    Date of creation: Oct 2010
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    Handle: RePEc:cep:ceedps:0120
    Contact details of provider: Web page: http://cee.lse.ac.uk/publications.htm

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