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What Linear Estimators Miss: The Effects of Family Income on Child Outcomes

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Author Info

  • Katrine V. L�ken
  • Magne Mogstad
  • Matthew Wiswall

Abstract

We assess the implications of nonlinearity for IV and FE estimation when the estimated model is inappropriately assumed to be linear. Our application is the causal link between family income and child outcomes. Our nonlinear IV and FE estimates show an increasing, concave relationship between family income and children's outcomes. We find that the linear estimators miss the significant effects of family income because they assign little weight to the large marginal effects in the lower part of the income distribution. We also show that the linear IV and FE estimates differ primarily because of different weighting of marginal effects. (JEL C26, D14, J12, J13)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/app.4.2.1
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 2 (April)
Pages: 1-35

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:2:p:1-35

Note: DOI: 10.1257/app.4.2.1
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  1. Martin Dooley & Jennifer Stewart, 2004. "Family income and child outcomes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 898-917, November.
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  3. Angrist, Joshua D & Graddy, Kathryn & Imbens, Guido W, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 499-527, July.
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  7. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design is taking the Con out of Econometrics," CEP Discussion Papers dp0976, Centre for Economic Performance, LSE.
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  9. Daniela Del Boca & Christopher Flinn & Matthew Wiswall, 2014. "Household Choices and Child Development," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 137-185.
  10. Joshua D. Angrist & Guido W. Imbens, 1995. "Average Causal Response with Variable Treatment Intensity," NBER Technical Working Papers 0127, National Bureau of Economic Research, Inc.
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  23. Milligan, Kevin & Stabile, Mark, 2007. "The integration of child tax credits and welfare: Evidence from the Canadian National Child Benefit program," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 305-326, February.
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