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

41 Pages Posted: 17 Dec 2009

See all articles by Matthew J. Lindquist

Matthew J. Lindquist

Stockholm University - Swedish Institute for Social Research (SOFI)

David Sims

Brigham Young University

Lars Lefgren

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: December 10, 2009

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.

Keywords: Intergenerational Income Inequality, Does Money Matter, Intergenerational Income Elasticity

JEL Classification: D31, I30, J24, J30, J62

Suggested Citation

Lindquist, Matthew J. and Sims, David and Lefgren, Lars, Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income (December 10, 2009). Available at SSRN: https://ssrn.com/abstract=1523411 or http://dx.doi.org/10.2139/ssrn.1523411

Matthew J. Lindquist

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

David Sims

Brigham Young University ( email )

Provo, UT 84602
United States

Lars Lefgren (Contact Author)

Brigham Young University ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States

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