The Political Economy of Intergenerational Income Mobility
European University Institute - Economics Department (ECO); University of Bologna, Dipartimento di Scienze Economiche; Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 4767
The intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members. While much research has been devoted to measuring this reduced-form parameter, less is known about its underlying structural determinants. Using a model with exogenous talent endowments, endogenous parental investment in children and endogenous redistributive institutions, we identify the structural parameters that govern the intergenerational elasticity of income. The model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility. Two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions. We offer empirical evidence in line with the predictions of the model. We conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico-economic institutions.
Number of Pages in PDF File: 46
Keywords: intergenerational mobility, public education, political institutions
JEL Classification: E24, J62, J68, P16working papers series
Date posted: February 22, 2010
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