IDEAS home Printed from https://ideas.repec.org/p/sce/scecf0/365.html
   My bibliography  Save this paper

Intergenerational Persistence Of Income: Sources And Policy

Author

Listed:
  • Carlos Urrutia

    (Universidad Carlos III de Madrid)

  • Diego Restruccia

    (University of Toronto)

Abstract

Recent empirical studies show that the intergenerational persistence of income is much higher than previously thought. The objective of the paper is to account for this observation. Unlike models that rely on exogenous transmission of abilities or luck, we generate persistence endogenously through two channels: direct wealth bequests and investment in child's education in an environment with imperfect credit markets.We construct a dynastic overlapping generations model in which individuals live for two periods. Old agents decide how much to invest in their chidren's education and the amount of bequests (constrained to be non-negative). Agents face two types of idiosyncratic i.i.d. shocks: an ability shock; that we interpret as a broad measure of learning potential, and a wage shock representing career luck. We characterize a stationary equilibrium for this economy and choose parameter values to match relevant features of the U.S. economy, in particular the distributions of education, earnings, and income. We find that the model is able to account for around one third of the observed persistence in earnings and half of the persistence in income.

Suggested Citation

  • Carlos Urrutia & Diego Restruccia, 2000. "Intergenerational Persistence Of Income: Sources And Policy," Computing in Economics and Finance 2000 365, Society for Computational Economics.
  • Handle: RePEc:sce:scecf0:365
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf0:365. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/sceeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.