Does Public Investment Promote Intergenerational Mobility? Who Really Benefits?

The conventional model of intergenerational income mobility suggests child’s income is a function of his human capital investment determined by parental income, which neglects the role of public investment. This paper aims to distinguish whether and how public investment affects intergenerational income mobility and who are the actual beneficiaries. Data used for analysis is from China Health and Nutrition Survey, and is precisely matched to provincial public investment data. To mitigate the potential biases, average income of at least three waves is adopted. Through investigations, this study finds public investment could promote intergenerational income mobility obviously but unequally. Middle-distributed income groups are found to benefit more from public investment than the upper and bottom tail of the income distribution. The opportunities for the middle-distributed income groups are fairly better, while it seems harder for individuals of the bottom income distribution to have a breakthrough. Positional changes between middle income groups and top income groups contribute largely to the intergenerational income mobility during the sample period. Regions with higher public investment present higher mobility as well. To promote intergenerational mobility, public investment should target more precisely at lower income groups.