Scandinavian Working Papers in Economics

Working Paper Series, Center for Labor Studies,
Uppsala University, Department of Economics

No 2012:22: Partial Insurance and Investments in Children

Pedro Carneiro and Rita Ginja ()
Additional contact information
Pedro Carneiro: University College London, Postal: Institute for Fiscal Studies, Centre for Microdata Methods and Practice
Rita Ginja: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

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, and we cannot reject the hypothesis full insurance against temporary shocks. Nevertheless, the magnitude of the estimated responses is small. A permanent shock corresponding to 10% of family income leads, at most, to an increase in investments of 1.3% of a standard

Keywords: Insurance; human capital; consumption

JEL-codes: D12; D91; I30

32 pages, December 30, 2012

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