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Children and Household Wealth

  • JohnKarl Scholz

    (University of Wisconsin-Madison)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

This paper examines the effects of children on consumption and wealth. To anchor intuition, we develop implications using a simple permanent income model with no uncertainty and complete markets. But this framework does not come close to matching the distribution of existing wealth. We therefore examine the effects of children using a rich, augmented life-cycle model, and using a life-cycle model with endogenous fertility. We find that children have a large effect on household’s net worth and consequently are an important factor in understanding the wealth distribution. The effects of children are much larger than the effects of asset tests associated with cash and near-cash transfers, given earnings realizations and the social security system experienced by households in the original HRS cohort. We also show that fertility and credit constraints interact in ways that significantly affect wealth accumulation.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp158.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp158.

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Length: 44 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:mrr:papers:wp158
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  1. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
  2. Erik Hurst & James P. Ziliak, 2004. "Do Welfare Asset Limits Affect Household Saving? Evidence from Welfare Reform," NBER Working Papers 10487, National Bureau of Economic Research, Inc.
  3. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  4. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1993. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc.
  5. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
  6. Robert Haveman & Barbara Wolfe, 1995. "The Determinants of Children's Attainments: A Review of Methods and Findings," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1829-1878, December.
  7. Matthias Doepke, 2001. "Accounting for Fertility Decline During the Transition to Growth," UCLA Economics Working Papers 804, UCLA Department of Economics.
  8. Lazear, Edward P & Michael, Robert T, 1980. "Family Size and the Distribution of Real Per Capita Income," American Economic Review, American Economic Association, vol. 70(1), pages 91-107, March.
  9. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
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