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

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Abstract

This paper examines the causal relationship between family income and child out- comes. Motivated by theoretical predictions and OLS results suggesting a nonlinear relationship, we depart from previous studies in allowing the marginal e ects on children's outcomes of an increase in family income to vary across the income dis- tribution. Our nonlinear IV and xed-e ect estimates show an increasing, concave relationship between family income and children's outcomes. By decomposing the linear estimators, we show that the linear estimates miss the e ects of family in-come, because they assign little weight to the large marginal e ects in the lower part of the income distribution.

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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 02/11.

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Length: 53 pages
Date of creation: 14 Jan 2011
Date of revision:
Handle: RePEc:hhs:bergec:2011_002

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Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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Web page: http://www.uib.no/econ/en
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Keywords: family income; child development; nonlinearities; fixed effects estimation; instrumental variables estimation; linear models;

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