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

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  • Thomas Høgholm Jørgensen

    (Department of Economics, University of Copenhagen)

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.

Suggested Citation

  • Thomas Høgholm Jørgensen, 2015. "Life-Cycle Consumption and Children: Evidence from a Structural Estimation," Discussion Papers 15-08, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:1508
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    Cited by:

    1. Katrine Jakobsen & Thomas H Jørgensen & Hamish Low, 2022. "Fertility and Family Labor Supply," Economics Series Working Papers 965, University of Oxford, Department of Economics.
    2. Thomas H. Jørgensen, 2016. "Euler equation estimation: Children and credit constraints," Quantitative Economics, Econometric Society, vol. 7(3), pages 935-968, November.

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    More about this item

    Keywords

    Consumption; Children; Precautionary saving; Life cycle; Structural Estimation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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