Abstract:
Existing literature on the role of household finance on marital stability implicitly assumes the effect to be homogeneous across all age cohorts. This is too strong an assumption because changes in wealth affect differently at different points in the life-cycle - there are plausible reasons to believe the effect on marital stability is heterogeneous too. Older people rely more on wealth. This, coupled with the demographic trend of non-trivial divorce rate among older people, motivates me to study the impact of wealth change among people aged more than 50 years. Using data from the Health and Retirement Study, I first establish some descriptive facts about the association between wealth and divorce. Then, to estimate the causal effect, I use two separate plausibly exogenous shocks to wealth - one derived from the stock market and the other from the housing market. I find evidence of heterogeneity, both across the nature of shocks as well as level of wealth. High values of positive shocks to the stock market significantly predict lower divorce probability, but only in below median households - no evidence of effect of negative shock. However, high values of positive shock to the housing market is significantly associated with lower probability for both below and above median households.
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