Education Spending, Fertility Shocks and Generational Consumption Risk

Emerson Patrick M. () and Knabb Shawn D. ()
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Emerson Patrick M.: Economics, Oregon State University, Corvallis, OR, USA
Knabb Shawn D.: Department of Economics, Western Washington University, 516 High Street, Bellingham, WA98225-9008, USA

The B.E. Journal of Theoretical Economics, 2020, vol. 20, issue 2, 26

Abstract: This paper develops a model with overlapping generations to show that human capital formation can potentially attenuate factor price movements in response to fertility shocks if education spending per child is inversely related to the size of the generation subject to the fertility shock. The degree of attenuation depends on the effectiveness of education spending in producing human capital. We also find this attenuation effect concentrates generational consumption risk around the generation subject to the fertility shock. The combination of these two results suggest that there is an inverse relationship between the degree of factor price movements and lifetime consumption profiles in response to fertility shocks. Relatively larger generations will experience larger drops in lifetime consumption and relatively smaller generations will experience larger increases in lifetime consumption the less factor prices move in response to generational size. Thus, factor price smoothing does not necessarily translate into welfare smoothing across all generations.

Keywords: human capital; consumption risk; factor price movements; fertility shocks (search for similar items in EconPapers)
JEL-codes: E21 I26 I31 J11 J18 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/bejte-2018-0134

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