Compensating for unequal parental investments in schooling

Abstract

This paper investigates how rural families in China use marital and post-marital transfers to compensate their sons for unequal schooling expenditures. Using a common behavioral framework, we derive two methods for estimating the relationship between parental transfers and schooling investments: the log-linear and multiplicative household fixed-effects regression models. Using data from a unique household-level survey, we strongly reject the log-linear specification. Results from the multiplicative model suggest that when a son receives 1 yuan less in schooling investment than his brother, he obtains 0.47 yuan more in transfers as partial compensation. Since our measure of transfers represents a substantial fraction of total parental transfers, sons with more schooling likely enjoy higher lifetime consumption. Redistribution within the household may be limited by either the parents’ desire for consumption equality or bargaining constraints imposed by their children. Controlling for unobserved household heterogeneity and a fuller accounting of lifetime transfers are quantitatively important.