Does Money Matter for Intergenerational Income Transmission?

51 Pages Posted: 18 Nov 2016 Last revised: 28 Oct 2018

See all articles by Michelle M. Miller

Michelle M. Miller

Loyola Marymount University - Department of Economics

Frank McIntyre

Amazon.com

Date Written: November 18, 2016

Abstract

The intergenerational income elasticity is a crucial measure of income mobility. In this paper we develop a structural model to examine the channels through which this elasticity operates. Using data from the Panel Study of Income Dynamics, we separately identify the human capital and the financial component. The human capital component examines the transmission of human capital, independent of financial investments while the financial component examines the impact of income that is uncorrelated with human capital, that is, exogenous income. Using a two stage framework, we show that the intergenerational income elasticity operates through both channels. Moreover, our estimates show that the financial component may have a larger effect than previously estimated, plausibly attributing to 36 percent of intergenerational income transmission. Indeed, this result holds even when the financial component is defined in an incredibly narrow manner. This suggests that cash payments could promote intergenerational mobility.

Keywords: Intergenerational Income, Human Capital, Income Mobility

JEL Classification: D31, E24, J62

Suggested Citation

Miller, Michelle M. and McIntyre, Frank, Does Money Matter for Intergenerational Income Transmission? (November 18, 2016). Available at SSRN: https://ssrn.com/abstract=2872040 or http://dx.doi.org/10.2139/ssrn.2872040

Michelle M. Miller

Loyola Marymount University - Department of Economics ( email )

1 LMU Drive
Los Angeles, CA 90045
United States
(310) 338-1811 (Phone)

HOME PAGE: http://michellemmiller.lmu.build/

Frank McIntyre (Contact Author)

Amazon.com ( email )

Seattle, WA 98144
United States

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