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Estimating the Intergeneration Correlation of Incomes: An Errors-in-Variables Framework

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  • Naga, Ramses H Abul

Abstract

Because the permanent incomes of parents and children are typically unobservable, the permanent income of the parent family is taken to be a latent variable, but it is assumed that a model for its determinants is known to the researcher. I propose two related estimators for the intergenerational correlation: a 2SLS procedure and a more efficient MIMIC estimator. MIMIC also provides estimates of the variance parameters required to evaluate the bias of the OLS estimator. Using US data, I provide estimates for the intergenerational correlation ranging between 0.30 and 0.78. The bias of the OLS estimator is calculated to be in the order of 40%. Copyright 2002 by The London School of Economics and Political Science

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  • Naga, Ramses H Abul, 2002. "Estimating the Intergeneration Correlation of Incomes: An Errors-in-Variables Framework," Economica, London School of Economics and Political Science, vol. 69(273), pages 69-91, February.
    • Handle: RePEc:bla:econom:v:69:y:2002:i:273:p:69-91
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    Cited by:

    1. Lindquist, Matthew J. & Böhlmark, Anders, 2005. "Life-Cycle Variations in the Association between Current and Lifetime Income: Country, Cohort and Gender Comparisons," Working Paper Series 4/2005, Stockholm University, Swedish Institute for Social Research.
    2. Nguyen, Anh & Getinet, Haile, 2003. "Intergenerational mobility in educational and occupational status: evidence from the U.S," MPRA Paper 1383, University Library of Munich, Germany.

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