Do Redistributive Policies Promote Intergenerational Mobility?
Arizona State University Working Paper No. 99/6
29 Pages Posted: 9 Mar 2000
Date Written: November 1999
Numerous public policies are aimed at improving the earnings opportunities for children of the poor and at reducing lifetime earnings inequality. This paper investigates to what extent such policies accomplish their objectives. A quantitative theory of intergenerational mobility and lifetime earnings inequality is developed and parameterized to match selected features of U.S. data. Numerical experiments are used to measure the steady state effects of policies that increase the returns to human capital accumulation for children of the poor, either by lowering the private costs of education or by reducing labor income taxes for the poor. The main finding is that such policies have very little impact on intergenerational earnings mobility. Moreover, policies that reduce the private costs of education fail to reduce lifetime earnings inequality. These findings suggest that redistributive tax and subsidy policies of the kind studied here are largely ineffective in promoting "equality of opportunity."
JEL Classification: D3, H2, J62
Suggested Citation: Suggested Citation