Life-Cycle Consumption and Children: Evidence from a Structural Estimation

Thomas Jørgensen

No 15-08, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: I study how children affect the marginal utility of non-durable consumption.I estimate by Maximum Likelihood a structural economic model of optimal intertemporal allocation of consumption in the presence of children using high quality Danish administrative longitudinal data. Contrary to existing studies, I allow income uncertainty, credit constraints, and post-retirement motives to affect household behavior while the number and age of all children can affect the marginal utility of consumption. I estimate that children have a negligible effect on the marginal utility of non-durable consumption. To reconcile these results with existing studies, typically estimating an important role for children while ignoring precautionary motives, I illustrate how ignoring precautionary motives increases the estimated importance of children. I interpret the results as indicating that precautionary motives might play a larger role than children in explaining the observed consumption age profile.

Keywords: Consumption; Children; Precautionary saving; Life cycle; Structural Estimation (search for similar items in EconPapers)
JEL-codes: D12 D14 D91 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-05-26
New Economics Papers: this item is included in nep-dge and nep-upt
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http://www.econ.ku.dk/english/research/publications/wp/dp_2015/1508.pdf (application/pdf)

Related works:
Journal Article: Life-Cycle Consumption and Children: Evidence from a Structural Estimation (2017)
Working Paper: Life-Cycle Consumption and Children (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1508

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