Intergenerational Persistence Of Income: Sources And Policy
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.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" 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.
|Date of creation:||05 Jul 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +34 93 542 17 46
Web page: http://enginy.upf.es/SCE/Email:
More information through EDIRC
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)
If references are entirely missing, you can add them using this form.