Parental Time Investment and Intergenerational Mobility
57 Pages Posted: 10 Jun 2021 Last revised: 15 Nov 2021
Date Written: November 1, 2021
More educated and richer parents invest more time in their children throughout childhood. This paper constructs an overlapping generations general equilibrium model to explore the extent to which this heterogeneity in time investment shapes intergenerational mobility of lifetime income. The calibrated model successfully accounts for untargeted distributional aspects of income mobility, which are captured in the income quintile transition matrix. Counterfactual exercises show that removing heterogeneity in parental time investment raises intergenerational mobility significantly for early childhood but only marginally in later childhood. Since parental time and monetary investments are poor substitutes for human capital development in early childhood, parental time investment during this period serves as a mechanism that amplifies the transmission of the parents' economic status to their children. Policy experiments find that an asset-tested subsidy for parental investments in early childhood is the most cost-effective policy instrument for raising intergenerational mobility, though it reduces mobility substantially if given to parents with older school-aged children.
Keywords: Intergenerational elasticity, quintile transition matrix, parental investments, college education
JEL Classification: E24, I24, J22
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