TY - UNPB

T1 - Life-Cycle Consumption and Children

AU - Jørgensen, Thomas Høgholm

N1 - JEL classification: D12; D14; D91; E21

PY - 2014

Y1 - 2014

N2 - I show that conventional estimators based on the consumption Euler equation, extensively used in studies of intertemporal consumption behavior, produce inconsistent estimates of the effect of children on consumption if potentially binding credit constraints are ignored. As a more constructive contribution, I supply a tractable approach to obtaining bounds on the effect of children and a structural estimation strategy when households face constraints. Finally, I estimate the effect of children on consumption using the Panel Study of Income Dynamics (PSID) for the US and high quality Danish administrative register data. Results suggest that children does not affect household consumption in the same magnitude previously assumed.

AB - I show that conventional estimators based on the consumption Euler equation, extensively used in studies of intertemporal consumption behavior, produce inconsistent estimates of the effect of children on consumption if potentially binding credit constraints are ignored. As a more constructive contribution, I supply a tractable approach to obtaining bounds on the effect of children and a structural estimation strategy when households face constraints. Finally, I estimate the effect of children on consumption using the Panel Study of Income Dynamics (PSID) for the US and high quality Danish administrative register data. Results suggest that children does not affect household consumption in the same magnitude previously assumed.

KW - Faculty of Social Sciences

KW - consumption

KW - children

KW - life cycle

KW - credit constraints

KW - Structural estimation

M3 - Working paper

T3 - CAM working papers

BT - Life-Cycle Consumption and Children

PB - Centre for Applied Microeconometrics. Department of Economics, University of Copenhagen

CY - Kbh.

ER -