Intergenerational Aspirations, Capital Dilution, and the Dynamics of Inequality

36 Pages Posted: 15 Feb 2016 Last revised: 11 Aug 2017

See all articles by Bassel Tarbush

Bassel Tarbush

University of Oxford - Merton College

Francis Dennig

National University of Singapore (NUS) - Yale-NUS College

Date Written: July 31, 2017

Abstract

We propose a dynamic stochastic model of the intergenerational transmission of capital that accounts for fertility differentials. The evolution of the distribution of capital depends on a parent-to-child capital transmission technology, which captures how capital is diluted across siblings, and on a fertility-capital relationship, which can be rationalised as the outcome of a decision problem in which parents have aspirational preferences over the outcomes of their children. We derive a simple and explicit mapping from fertility and technology to the long run distribution of capital and use our result to characterise the effects of policy interventions on long run inequality.

Keywords: Markov branching process, inequality, steady state distribution, Pareto, log-normal, aspirational preferences, intergenerational transmission

JEL Classification: D31, E24, J10

Suggested Citation

Tarbush, Bassel and Dennig, Francis, Intergenerational Aspirations, Capital Dilution, and the Dynamics of Inequality (July 31, 2017). Available at SSRN: https://ssrn.com/abstract=2732248 or http://dx.doi.org/10.2139/ssrn.2732248

Bassel Tarbush (Contact Author)

University of Oxford - Merton College ( email )

Merton College
Oxford, OX1 4JD
United Kingdom

Francis Dennig

National University of Singapore (NUS) - Yale-NUS College ( email )

12 College Ave West, #01-201
Singapore, 138610
Singapore

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