London School of Economics Centre for the Economics of Education LSE
Centre for the Economics of Education  (CEE)

Abstract for:

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

Emma  Tominey,  October 2010
Paper No' CEEDP0120: | Full paper (pdf)
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Keywords: Income; pupil outcomes, shocks

JEL Classification: D12; J13

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEE Discussion Papers
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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 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.