The Long Goodbye: The Economic Effects of Early Parental Death

Early life events are fundamental for individual life trajectories and long-term outcomes. Parental death is one of the most traumatic one, with potential irreversible consequences on a child development and hence a large contributor to inequality in income and wealth in adulthood. Using Danish administrative data, we estimate that the death of a parent has a substantial (14%) negative effect on permanent income for deaths occurring in the first 1,000 days of life, an effect as large as moving someone from around the 75th to around the 55-60th percentile of the relevant income distribution. We provide evidence that the reasons for such large negative effects are to be found in the impact on children’s human capital formation, i.e., lower educational attainment, mental health issues, and geographical relocation.