Self-financing, Parental Transfer, and College Education

Sunha Myong and Jungho Lee
Additional contact information
Sunha Myong: Singapore Management University
Jungho Lee: Singapore Management University

No 106, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We study a college-financing problem by a family when children can self-finance by working. We develop and estimate a model in which children's human-capital accumulation depends on both monetary and time investment. The model explains how endogenous interactions between parental transfer, student loans, and self-financing lead to heterogeneous human-capital accumulation during college. Consumption smoothing is an important motive for self-financing if children can borrow only for education but not for consumption (the tied-to-investment constraint). When the constraint binds, parental transfer can increase children's monetary and time investment by reducing children's labor supply during college. This effect is more pronounced among high-ability students, and the model predicts the parental transfer in college financing increases by child ability, as observed in the data. Heterogeneous working hours by college students explain 14\% of the standard deviation of the within-group-income inequality among four-year-college attendees. Work-study program with a cap in working hours can effectively reduce income inequalities without substantial crowd-out by parents. Expanding loans for consumption are more effective in reducing income inequalities, but it results in substantial crowd-out by parents.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_106.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:106

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().