Working Paper: CEPR ID: DP10557
Authors: Pedro Carneiro; Rita Ginja
Abstract: This paper studies the impact of permanent and transitory shocks to income on parental investments in children. We use panel data on family income, and an index of investments in children in time and goods, from the Children of the National Longitudinal Survey of Youth. Consistent with the literature focusing on non-durable expenditure, we find that there is only partial insurance of parental investments against permanent income shocks, but the magnitude of the estimated responses is small. We cannot reject the hypothesis full insurance against temporary shocks. Another interpretation of our findings is that there is very little insurance available, but the fact that skill is a non-separable function of parental investments over time results in small reactions of these investments to income shocks, especially at later ages.
Keywords: Human Capital; Insurance
JEL Codes: J1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income shocks (D31) | Parental investments (J13) |
| Permanent income shocks (D15) | Parental investments (J13) |
| Transitory income shocks (D15) | Parental investments (J13) |