Mapping educational disparities in life-cycle consumption

Svend E. Hougaard Jensen, Sigurdur P. Olafsson, Thorsteinn S. Sveinsson and Gylfi Zoega

Economics from Department of Economics, Central bank of Iceland

Abstract: This paper uses data taken from the tax returns of all Icelandic taxpayers in 2005-2019, a period that saw large changes in disposable income around the country’s financial crisis in 2008, to plot the life-cycle path of consumption and income for different education groups and to estimate the level of consumption smoothing. We split households into three groups based on educational attainment: primary education, secondary school, and university. We find that the university educated engage in more consumption smoothing than those without a university degree. We also construct a measure for marginal propensity to consume (MPC) out of transitory income and find that the university educated tend to have a lower MPC than those with less education. This implies that investing in education is an investment not only in higher income and sometimes more fulfilling jobs but also a more stable standard of living. There is a corollary that a higher level of average education can be expected to reduce the magnitude of the business cycle through a lower multiplier.

JEL-codes: E21 E24 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:ice:wpaper:wp89

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