This article 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, from the Children of the National Longitudinal Survey of Youth. We find that there is partial insurance of parental investments against permanent income shocks but the magnitude of the estimated responses is small. We cannot reject the hypothesis of full insurance against temporary shocks. Another interpretation of our findings is that insurance possibilities are limited 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.
Authors
Research Fellow University College London
Pedro is a Professor of Economics at University College London and an economist in the IFS' Centre for Microdata Methods and Practice (cemmap).
Research Associate University of Bergen
Rita is an IFS Research Associate, an Associate Professor at the University of Bergen and a Research Associate at the Uppsala University.
Journal article details
- DOI
- 10.1111/ecoj.12421
- Publisher
- Wiley
- Issue
- Volume 126, October 2016
Suggested citation
Carneiro, P and Ginja, R. (2016). 'Partial insurance and investments in children' 126(2016)
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