Local Intergenerational Elasticities

Abstract

The intergenerational elasticity (IGE) is the most common parameter reported in the intergenerational mobility literature. This paper proposes a "local" intergenerational mobility parameter (LIGE) that allows the effect of parents' income to vary across different values of parents' income. We also extend this result to an "adjusted" local intergenerational elasticity (ALIGE) which adjusts for differences in the distribution of observed characteristics at different values of parents' income. We develop the asymptotic properties of the LIGE and ALIGE, and apply them to study intergenerational mobility using data from the PSID. We find that the intergenerational elasticity is much larger for low values of parents' income (indicating less mobility) relative to high values of parents' income; adjusting for differences in characteristics reduces the local IGE at all values of parents' income as well as flattening it across different values of parents' income.

The paper has been published at Economics Bulletin: http://www.accessecon.com/pubs/eb/default.aspx?page=Currentcontent&Show=Issue&Value=2&Year=2019

Keywords: Intergenerational Income Mobility, Local Linear Estimation, Smooth Coefficient Model

JEL Classification: J62, C21