Better Parents or Richer Parents: Understanding Intergenerational Transmission of Human Capital
49 Pages Posted: 5 Apr 2019
Date Written: February 22, 2019
There are two essential mechanisms in the canonical model of the transmission of human capital across generations -- parental income and parental education. We provide novel empirical evidence to disentangle the significance of these two factors in determining children's human capital. Two reforms in Sweden provide us with natural experiments to separately identify the effects of parental income versus parental education: an educational reform that exogenously changed the level of compulsory schooling and quality of education of the parent generation; and a tax reform that exogenously altered parents' net income. Using Swedish administrative data, we find that a 1,000 SEK increase in parental human capital leads to a 190 SEK increase in children's human capital. Exploiting the tax reform of 1991, we show that a 117 SEK increase in children's human capital -- that is, slightly over 60% of the overall effect -- is due to the parental education channel.
Keywords: Intergenerational Transmission, Education and Inequality, Government Policy, Personal Income and Other Nonbusiness Taxes and Subsidies
JEL Classification: J62, I24, I28, H24
Suggested Citation: Suggested Citation