Early and Late Human Capital Investments, Borrowing Constraints, and the Family

Elizabeth M. Caucutt and Lance Lochner

Journal of Political Economy, 2020, vol. 128, issue 3, 1065 - 1147

Abstract: We develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk, as well as the process of intergenerational ability transmission, in determining human capital investments in children at different ages. We calibrate our model to data from the Children of the National Longitudinal Survey of Youth. While the effects of relaxing any borrowing limit at a single stage are modest, eliminating all life-cycle borrowing limits dramatically increases investments, earnings, and intergenerational mobility. The impacts of policy changes at college-going ages are greater when anticipated earlier, and shifting subsidies to earlier ages increases aggregate welfare and human capital.

Date: 2020
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Related works:
Working Paper: Early and Late Human Capital Investments, Borrowing Constraints, and the Family (2017)
Working Paper: Early and Late Human Capital Investments, Borrowing Constraints, and the Family (2012)
Working Paper: Early and Late Human Capital Investments, Borrowing Constraints, and the Family (2012)
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