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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

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.

Suggested Citation

  • Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," Discussion Papers 10/21, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:10/21
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2010/1021.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Heckman, James J. & Moon, Seong Hyeok & Pinto, Rodrigo & Savelyev, Peter A. & Yavitz, Adam, 2010. "The rate of return to the HighScope Perry Preschool Program," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 114-128, February.
    4. Jérôme 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. Flavio Cunha & James J. Heckman & Susanne M. Schennach, 2010. "Estimating the Technology of Cognitive and Noncognitive Skill Formation," Econometrica, Econometric Society, vol. 78(3), pages 883-931, May.
    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, September.
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    Cited by:

    1. McNally, Sandra, 2010. "Evaluating education policies: the evidence from economic research," LSE Research Online Documents on Economics 57973, London School of Economics and Political Science, LSE Library.

    More about this item

    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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