Sooner or later? The impact of child education on household consumption

We study the impact of one more year of child’s education on household (non-durable) consumption. We exploit an exogenous shock generated by a university reform in Italy in the early 2000s. We find that families responded in a way that is consistent with education as a production good. The higher child’s education produced household positive, permanent income innovations. Hence, family non-durable consumption increased. Our findings suggest that education can be an insurance device against adverse permanent income shocks. The 2001 reform not only positively affected offspring’s years of schooling, but it also had a positive effect to boost household consumption.

Household Earnings and Income Volatility in the UK, 2009–2017

We study the volatility of sources of individual and household level income in the UK in the years 2009-2017, following the Great Recession and government austerity. We find that the volatility of (pre-tax) earnings and disposable income has fallen for the working-age in this period, largely due to fewer negative and large earnings shocks. For older individuals, we also find a fall in the volatility of private income, mainly due to fewer positive and large income shocks. Taxes and transfers help stabilise incomes, with social security cash benefits and income-dependent refundable tax credits reducing household private income volatility by around a quarter for the working age, and 40 percent for those aged 60 or over. However, over the sample period, taxes and benefits became less well correlated with earnings, reducing their ability to counteract swings in labour income. The findings illustrate the consequences of fiscal retrenchment and the cut-backs to welfare benefits on the stability of incomes.

HOUSING CHOICES AND THEIR IMPLICATIONS FOR CONSUMPTION HETEROGENEITY

This paper proposes a model to jointly explain two stylized facts observed in the recent empirical literature—the existence of a significant size of wealthy hand-to-mouth consumers and negative marginal propensities to consume associated with housing upgrades. The key ingredients of the model are a realistic set of housing choices, sizable down payment requirements, transaction costs, and endogenous borrowing constraints. Moreover, in the presence of unanticipated income shocks, this richness in marginal propensities to consume has significant implications for aggregate consumption and helps explain the puzzling increase in savings by low net worth households observed during the Great Recession as well as the consumption responses to recent tax rebates.

Social protection and informality in Latin America during the COVID-19 pandemic

Latin American governments swiftly implemented income assistance programs to sustain families’ livelihoods during COVID-19 stay-at-home orders. This paper analyzes the potential coverage and generosity of these measures and assesses the suitability of current safety nets to deal with unexpected negative income shocks in 10 Latin American countries. The expansion of pre-existing programs (most notably conditional cash transfers and non-contributory pensions) during the COVID-19 crisis was generally insufficient to compensate for the inability to work among the poorest segments of the population. When COVID-19 ad hoc programs are analyzed, the coverage and replacement rates of regular labor income among households in the first quintile of the country’s labor income distribution increase substantially. Yet, these programs present substantial coverage challenges among families composed of fundamentally informal workers who are non-poor, but are at a high risk of poverty. These results highlight the limitations of the fragmented nature of social protection systems in the region.

Essays on globalization and conflict: the impact of income and environmental shocks in Africa

This thesis considers the importance of spatial patterns and the use of geo-localizeddata in panel and repeated cross-section data econometrics by addressing causality issues to obtain further insights into the causes and consequences of con ict in a globalized world. Chapter Two analyzes the link between globalization and the incidence of civil conflict in a panel dataset of 159 countries over the period 1972-2009. Distinctions are drawn between several dimensions of globalization identi ed in political economy literature, i.e. economic, social, and political globalization. I address the potential endogeneity of the globalization variables by introducing country-fixed effects into the analysis. I also use a novel spatial instrumental variable based on the degree of integration of neighboring countries. Chapter Three uses geo-localized information to study the ethnic drivers of food-related income shocks and their e ects on conflict in Africa to explain underlying conflict processes. Thus, I propose the use of a panel database of a full grid of African countries divided into sub-national units of 0.5 per 0.5 degrees of latitude and longitude (10,638 cells) that covers the period 1998-2013. The study contributes to the relevant literature by analyzing several competing theories on the e ects of income shocks on conflict, using geo-localized data which considers the interaction between those income shocks and ethnic diversity. Finally, Chapter Four examines the environmental damage that conflict may cause, such as oil spills in Nigeria and their impact on agricultural production. Thus, I use a consumer-producer household framework to explain how oil-spill pollution might result in changes in the optimal behavior of households. I estimate an agricultural production function using repeated cross-sections of micro-data geo-referenced for farming households and four waves of data from 2009 to 2018 taken from the Nigeria General Household Survey (GHS-Panel). To calculate a proxy for oil spill pollution, I create a function that uses geospatial data with information on around 12,000 oil spills from the Nigerian Oil Spill Monitor.

CO-MOVEMENT OF STEADY-STATE GOVERNMENT DEBT AND HOUSEHOLD DEBT

To understand whether and how movements of government debt and household debt are related, stationary equilibrium government debt and household debt are characterized in a politico-economic model where office-seeking policymakers decide government debt and individual voters can borrow facing uninsurable idiosyncratic income shocks. An increase in uninsurable income risk unconditionally raises stationary equilibrium government debt and aggregate household debt together, while an increase in household-loan collateral value or population aging conditionally does so, entailing positive correlations between these two debts’ movements. In contrast, an increase in interest rate conditionally causes these two debts to move in the opposite directions.

MPC Heterogeneity and Household Balance Sheets

We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance sheets and characteristics such as education and income, it is the amount won, age, and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around US$1,500) are estimated to spend all within the year of winning. The corresponding estimate for high-liquidity winners of large prizes (US$8, 300–150,000) is slightly below one-half. While conventional models will struggle to account for such high MPC levels, we show that a two-asset life cycle model with a realistic earnings profile and a luxury bequest motive can account for both the time profile of consumption responses and their systematic covariation with observables. (JEL D12, D15, E21, G51, H24)