Permanent Faculty – University of Copenhagen

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Life-Cycle Consumption and Children

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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.
Original languageEnglish
Place of PublicationKbh.
PublisherCentre for Applied Microeconometrics. Department of Economics, University of Copenhagen
Number of pages56
Publication statusPublished - 2014
SeriesCAM working papers
Number02
Volume2014

Bibliographical note

JEL classification: D12; D14; D91; E21

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