education is a hotly debated issue. On the one hand, a rich theoretical literature following Becker and Tomes (1986) argues that parental resources may affect educational decisions through budget and credit constraints because education is a consumption good, not only an investment. On the other hand, another influential literature following Cameron and Heckman (2001) argues that parental investment in children’s human capital needs not be related to parental income. One possible reason for this disagreement is that temporary and persistent, small and large changes in household income may have different effects on children’s education. Households are more likely to reoptimize the consumption in response to large and persistent shocks. Therefore, a large and persistent reduction in household income would be expected to affect children’s education, whereas a small and temporary reduction in household income will not necessarily affect children’s education. As Browning and Crossley (2009) suggests, households who are temporarily constrained (if they are unable to smooth through borrowing) will cut back more on goods that exhibit high intertemporal substitution, e.g., luxuries because the utility cost of fluctuations would be lower. Thus, parents can invest in their children’s education by reducing other expenditures, selling assets, or raising their own working effort. However, a persistent reduction in household income hampers their ability to consumption smoothing, especially when the shock increases uncertainty about future income (Stephens Jr (2001)). Moreover, the same shock can have different effects on households consumption depend on households’ characteristics including budget constraints, adjustment costs, and their preferences.<sup>3</sup> Even when parental spending on children’s education reduces, much of which may be offset by financial aid, e.g., college loans. Economic sanctions may also affect children’s education through changes in government spending. While the direct benefits of public spending on education are widely agreed upon, the effect of sanctions on public spending is unclear. Economic sanctions target government revenues by imposing trade and financial restrictions. However, the effect of a government revenue shock on sub-categories of government expenditures (e.g., expenditure on education) is not clear and depends on fiscal and political institutions.

The key empirical challenge of measuring the effects of sanctions on children’s education is one of identification. Sanctions that are not confounded with other factors, that also affected children’s education, are difficult to come by. Farjo (2011) finds a reduction in primary school enrollment during 1990-2003 when the UN imposed economic sanctions on Iraq. However, its causal implications are limited because this study does not distinguish the effects of sanctions from the effects of several other relevant factors such as war and political instability.<sup>4</sup> Credible estimates of sanction effects on children’s education require a solution to the identification problem. The second challenge is a dearth of reliable data. In most cases, the presence of conflicts poses a substantial obstacle to the collection of survey data especially on the displaced populations and people in conflict areas (Barakat et al. (2002)). Even if data are collected, their accuracy is an open question.

> 3On average, changes in household income or liquidity cause significant changes in household spending among households with low liquid wealth or low income, even when the shock is predictable (Johnson et al. (2006); Stephens Jr (2008); Jappelli and Pistaferri (2014)). Moreover, adjustment costs vary across households depends on their consumption commitments. For example, an adjustment is more costly for homeowners who have to pay the mortgage, especially in the short run. Consumption of many other durable goods (e.g., vehicles and furniture) and services (e.g., insurance and utilities) may also be difficult to adjust (Chetty and Szeidl (2007)).

> 4Although there are a few studies that analyze the education trends during the years of sanctions, there is a growing literature on the effect of armed conflict on schooling. The results of these studies cannot be generalized to the sanctions cases. In addition to the overall mixed evidence (depending on the context of conflict and intensity of recruitment during warfare), channels through which education might have been affected are different. Children’s education usually decreases during the war because of child soldiering, forced migration and displacement, household labor allocation decisions, security shock, changes in returns to education, and changes in quality and availability of school facilities (Verwimp and Van Bavel (2013); Justino (2011)).

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