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What Linear Estimators Miss: The E ects of Family Income on Child Outcomes

This paper examines the causal relationship between family income and child out- comes. Motivated by theoretical predictions and OLS results suggesting a nonlinear relationship, we depart from previous studies in allowing the marginal e ects on children's outcomes of an increase in family income to vary across the income dis- tribution. Our nonlinear IV and xed-e ect estimates show an increasing, concave relationship between family income and children's outcomes. By decomposing the linear estimators, we show that the linear estimates miss the e ects of family in-come, because they assign little weight to the large marginal e ects in the lower part of the income distribution.

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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 02/11.

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Length: 53 pages
Date of creation: 14 Jan 2011
Date of revision:
Handle: RePEc:hhs:bergec:2011_002
Contact details of provider: Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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  17. Dan Maurice Levy & Greg Duncan, 2000. "Using Sibling Samples to Assess the Effect of Childhood Family Income on Completed Schooling," JCPR Working Papers 168, Northwestern University/University of Chicago Joint Center for Poverty Research.
  18. Lance Lochner & Enrico Moretti, 2011. "Estimating and Testing Non-Linear Models Using Instrumental Variables," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20112, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  19. David M. Blau, 1999. "The Effect Of Income On Child Development," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 261-276, May.
  20. Philip Oreopolous & Marianne Page & Ann Huff Stevens, 2005. "The Intergenerational Effects Of Worker Displacement," Working Papers id:183, eSocialSciences.
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