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Insurance against Income Shocks, Parental Investments, and Child Development

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Faced with income shocks, households may be unable to smooth their consumption, because of limited insurance possibilities. Likewise, it may also be difficult to smooth investments in children. This could have large consequences for their human capital if there are sensitive periods of learning, or if investments are not perfect substitutes over time. In this paper we estimate the impact of transitory and permanent shocks to household income in different periods of childhood on the human capital of their children, using administrative records from Norway. Across outcomes, the impacts of transitory and permanent shocks are largely similar regardless of the age at which they occur, with a few exceptions (small in magnitude). The impact of transitory shocks is larger for college enrolment and obesity if these shocks occur at earlier ages. The impacts of permanent shocks on high school graduation are larger the later in childhood they occur.

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  • Carneiro, Pedro & Salvanes, Kjell Gunnar & Tominey, Emma, 2024. "Insurance against Income Shocks, Parental Investments, and Child Development," Discussion Paper Series in Economics 10/2024, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2024_010
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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