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Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income

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Abstract

We construct a simple model, consistent with Becker and Tomes (1979), that decomposes the intergenerational income elasticity into the causal effect of financial resources, the mechanistic transmission of human capital, and the role that human capital plays in the determination of father’s permanent income. We show how a particular set of instrumental variables could separately identify the money and human capital transmission effects. We further outline two instrumental variables methods for bounding the structural parameters of our model in the presence of imperfect instruments. Using data from a thirty-five percent sample of Swedish sons and their fathers, we show that only a minority of the intergenerational income elasticity can be plausibly attributed to the causal effect of fathers’ financial resources.

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  • Lefgren, Lars & Lindquist, Matthew & Sims, David, 2009. "Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income," Research Papers in Economics 2009:19, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2009_0019
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. ¿Qué es Mejor para mi Hijo: Mi Dinero o Mi Cerebro?
      by Alejandro Villagomez in Tintero Económico Diario on 2012-07-17 08:25:00

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    2. Mikael Lindahl & Mårten Palme & Sofia Sandgren-Massih & Anna Sjögren, 2014. "A Test of the Becker-Tomes Model of Human Capital Transmission Using Microdata on Four Generations," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 80-96.
    3. Lindahl, Mikael & Palme, Mårten & Sandgren Massih, Sofia & Sjögren, Anna, 2012. "The intergenerational persistence of human capital: an empirical analysis of four generations," Working Paper Series 2012:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Richey, Jeremiah & Rosburg, Alicia, 2016. "Understanding intergenerational economic mobility by decomposing joint distributions," MPRA Paper 72665, University Library of Munich, Germany.
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    6. Lindquist, Matthew J. & Sol, Joeri & van Praag, Mirjam C. & Vladasel, Theodor, 2016. "On the Origins of Entrepreneurship: Evidence from Sibling Correlations," IZA Discussion Papers 10278, Institute for the Study of Labor (IZA).
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    8. Eriksson, Tor & Pan, Jay & Qin, Xuezheng, 2014. "The intergenerational inequality of health in China," China Economic Review, Elsevier, vol. 31(C), pages 392-409.
    9. Montserrat Vilalta-Bufi(Universitat de Barcelona) & Ausias Ribo (Universitat de Barcelona), 2012. "Educational expansion, intergenerational mobility and over-education," Working Papers in Economics 284, Universitat de Barcelona. Espai de Recerca en Economia.
    10. Hamish Low & Aruni Mitra & Giovanni Gallipoli, 2017. "Consumption and Income Persistence across Generations," 2017 Meeting Papers 1215, Society for Economic Dynamics.
    11. Coban, Mustafa & Sauerhammer, Sarah, 2017. "Transmission channels of intergenerational income mobility: Empirical evidence from Germany and the Unites States," Discussion Paper Series 138, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
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    14. Chu, Luke Yu-Wei & Lin, Ming-Jen, 2016. "Economic development and intergenerational earnings mobility: Evidence from Taiwan," Working Paper Series 5272, Victoria University of Wellington, School of Economics and Finance.
    15. Emran,M. Shahe & Greene,William & Shilpi,Forhad J., 2016. "When measure matters: coresidency, truncation bias, and intergenerational mobility in developing countries," Policy Research Working Paper Series 7608, The World Bank.
    16. repec:bla:ecinqu:v:55:y:2017:i:2:p:1032-1053 is not listed on IDEAS
    17. Richey, Jeremiah & Rosburg, Alicia, 2016. "Decomposing Joint Distributions via Reweighting Functions: An Application to Intergenerational Economic Mobility," MPRA Paper 74744, University Library of Munich, Germany.
    18. Emran, M. Shahe & Sun, Yan, 2014. "Are the Children of Uneducated Farmers Doubly Doomed? Farm, Nonfarm and Intergenerational Educational Mobility in Rural China," MPRA Paper 59230, University Library of Munich, Germany.
    19. Cardak, Buly A. & Johnston, David W. & Martin, Vance L., 2013. "Intergenerational earnings mobility: A new decomposition of investment and endowment effects," Labour Economics, Elsevier, vol. 24(C), pages 39-47.
    20. Du, Zaichao & LI, Renyu & He, Qinying & ZHANG, Lin, 2014. "Decomposing the rich dad effect on income inequality using instrumental variable quantile regression," China Economic Review, Elsevier, vol. 31(C), pages 379-391.
    21. Tamura, Robert & Dwyer, Gerald P. & Devereux, John & Baier, Scott, 2012. "Economic growth In the long run," MPRA Paper 41324, University Library of Munich, Germany.
    22. Handy, Christopher, 2014. "Assortative Mating and Intergenerational Persistence of Schooling and Earnings," MPRA Paper 63829, University Library of Munich, Germany.
    23. Nybom, Martin & Stuhler, Jan, 2013. "Interpreting Trends in Intergenerational Income Mobility," IZA Discussion Papers 7514, Institute for the Study of Labor (IZA).
    24. FAN, Yi, 2016. "Intergenerational income persistence and transmission mechanism: Evidence from urban China," China Economic Review, Elsevier, vol. 41(C), pages 299-314.
    25. Bevis, Leah E.M. & Barrett, Christopher B., 2015. "Decomposing Intergenerational Income Elasticity: The Gender-differentiated Contribution of Capital Transmission in Rural Philippines," World Development, Elsevier, vol. 74(C), pages 233-252.

    More about this item

    Keywords

    financial resources; human capital; intergenerational income elasticity; intergenerational mobility; permanent income;

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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