Life-Cycle Consumption and Children: Evidence from a Structural Estimation
Research output: Contribution to journal › Journal article › Research › peer-review
I estimate by maximum likelihood a dynamic model of optimal intertemporal allocation of consumption in the presence of children using high-quality Danish longitudinal data. The number and age of all children can affect the marginal utility of consumption while income uncertainty, credit constraints and postretirement motives also influence household behaviour. While I estimate that children have a surprisingly small effect on the marginal utility of non-durable consumption, data simulated from the estimated model replicates similar correlations between log consumption growth and changing household composition as found in the Danish data and typically found in UK and US data. To reconcile the results with existing studies, I illustrate how ignoring precautionary motives increases the estimated importance of children. The results indicate that precautionary motives might play a larger role than children in explaining the observed consumption age profile.
|Journal||Oxford Bulletin of Economics and Statistics|
|Publication status||Published - Oct 2017|
- Faculty of Social Sciences - D12, D14, D91