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Galtonian regression of intergenerational income linkages: biased procedures, a new estimator and mean-square error comparisons

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  • Abul Naga, Ramses H.

Abstract

Because the permanent incomes of parents and children are typically unobserved, the estimation of the intergenerational correlation via the use of proxy variables entails an errors-in-variables bias. By solving a system of moment equations for income observed at a given year, and a T-period average of this variable, we derive an analytical form for the signal to total variance ratio. In turn, we propose a simple estimator of the intergenerational elasticity via division of the OLS estimator of this quantity. Estimates of the intergenerational elasticity derived from a PSID sample range between 0.34 and 0.69. The averaging estimator provides intermediary values between OLS and the proposed estimator. Persistence is higher for family income measures than labor market outcomes. Estimates generally increase for moving average specifications in comparison to the assumption that measurement errors are uncorrelated. The three estimators are further examined in the light of their mean-square errors (square bias plus variance).

Suggested Citation

  • Abul Naga, Ramses H., 2001. "Galtonian regression of intergenerational income linkages: biased procedures, a new estimator and mean-square error comparisons," LSE Research Online Documents on Economics 6564, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:6564
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    2. Ramses H. ABUL NAGA, 2001. "Biases of the Ordinary Least Squares and Instrumental Variables Estimators of the Intergenerational Earnings Correlation : Revisited in the Light of Panel Data," Cahiers de Recherches Economiques du Département d'économie 01.05, Université de Lausanne, Faculté des HEC, Département d’économie.
    3. D. O’Neill & O. Sweetman & D. Van De Gaer, 2002. "Consequences of Specification Error for Distributional Analysis With an Application to Intergenerational Mobility," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/156, Ghent University, Faculty of Economics and Business Administration.

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    More about this item

    Keywords

    Intergenerational mobility; Galtonian regression; errors in variables; mean-square errors;
    All these keywords.

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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