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

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

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