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Switching Regression Estimates of the Intergenerational Persistence of Consumption

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  • Sheng Guo

    () (Department of Economics, Florida International University)

Abstract

The influential economic theory of intergenerational transfers predicts a negative connection between credit constraints and intergenerational mobility of consumption. Existing work has used bequest receipt to signal a parent's access to credit markets when investing in his children's human capital. Yet measurement error in bequest receipt generates misclassification error and thus attenuation bias. Employing switching regressions with imperfect sample separation to deal with this error, we show that the intergenerational persistence of consumption in the U.S. for credit constrained families is much higher than for unconstrained families, contrary to what the theory implies. This means children from constrained families are more likely to have consumption levels similar to those of their parents than children from unconstrained families. Our results are robust to the choice of bequest variables and other predictive variables in the switching equation.

Suggested Citation

  • Sheng Guo, 2009. "Switching Regression Estimates of the Intergenerational Persistence of Consumption," Working Papers 0904, Florida International University, Department of Economics.
  • Handle: RePEc:fiu:wpaper:0904
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    File URL: http://casgroup.fiu.edu/pages/docs/1569/1280267707_09-04.pdf
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    Cited by:

    1. Raj Arunachalam & Trevon Logan, 2016. "On the heterogeneity of dowry motives," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(1), pages 135-166, January.

    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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