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What Linear Estimators Miss: Re-Examining the Effects of Family Income on Child Outcomes

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Author Info

  • Loken, Katrine Vellesen

    ()
    (University of Bergen)

  • Mogstad, Magne

    ()
    (University of Chicago)

  • Wiswall, Matthew

    ()
    (Arizona State University)

Abstract

This paper uses a rich Norwegian dataset to re-examine the causal relationship between family income and child outcomes. Motivated by theoretical predictions and OLS results that suggest a nonlinear relationship, we depart from previous studies in allowing the marginal effects on children’s outcomes of an increase in family income to vary across the income distribution. Our nonlinear IV and fixed-effect estimates show an increasing, concave relationship between family income and children's educational attainment and IQ. The linear estimates, however, suggest small, if any, effect of family income, because they assign little weight to the large marginal effects at the lower part of the income distribution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4971.

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Length: 62 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: American Economic Journal: Applied Economics 2012, 4(2), 1–35
Handle: RePEc:iza:izadps:dp4971

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Related research

Keywords: linear models; family income; instrumental variables estimation; child development; fixed effects estimation; nonlinearities;

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References

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  1. Dan Maurice Levy & Greg Duncan, 2000. "Using Sibling Samples to Assess the Effect of Childhood Family Income on Completed Schooling," JCPR Working Papers 168, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  10. Magne Mogstad & Matthew Wiswall, 2009. "How Linear Models Can Mask Non-Linear Causal Relationships. An Application to Family Size and Children's Education," Discussion Papers 586, Research Department of Statistics Norway.
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  18. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
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