Rich Dad Smart Dad: Decomposing the Intergenerational Transmission of Income

Posted: 20 Dec 2009 Last revised: 22 Dec 2009

See all articles by Lars Lefgren

Lars Lefgren

Brigham Young University

Matthew J. Lindquist

Stockholm University - Swedish Institute for Social Research (SOFI)

David Sims

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: financial resources, human capital, intergenerational income elasticity, intergenerational mobility, permanent income

JEL Classification: J62

Suggested Citation

Lefgren, Lars and Lindquist, Matthew J. and Sims, David, Rich Dad Smart Dad: Decomposing the Intergenerational Transmission of Income (December 10, 2009). Available at SSRN: https://ssrn.com/abstract=1524236

Lars Lefgren

Brigham Young University ( email )

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

Matthew J. Lindquist (Contact Author)

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

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