Intergenerational Income Mobility and Economic Freedom

71 Pages Posted: 11 Oct 2021 Last revised: 17 Aug 2022

See all articles by Justin T Callais

Justin T Callais

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics, Students; University of Louisiana at Lafayette - Department of Economics and Finance

Vincent Geloso

George Mason University - Department of Economics

Date Written: October 10, 2021

Abstract

Numerous studies have found that income inequality reduces the chances of upward relative mobility (i.e., climbing up the income ladder). However, most of this work ignores the role played by institutional quality (namely, economic freedom) in determining mobility and increasing the individual’s set of choices. We fill this gap by empirically testing the direct and indirect (through economic growth) impacts of economic freedom on intergenerational income mobility. We find that economic freedom has both direct and indirect effects on intergenerational income mobility. Income inequality is also a strong predictor, but of downward income mobility. When we incorporate findings about the purely mechanical relationship between inequality and intergeneration income mobility (e.g., Guner 2015; Berman 2019), we find that the legal system and property rights component of economic freedom matters more than inequality. These results suggest that good institutions can increase intergenerational income mobility.

Keywords: Economic Freedom, Income Mobility, Inequality, Positive Liberty

JEL Classification: N31, H41, D72, L51

Suggested Citation

Callais, Justin and Geloso, Vincent, Intergenerational Income Mobility and Economic Freedom (October 10, 2021). GMU Working Paper in Economics No. 21-30, Available at SSRN: https://ssrn.com/abstract=3939909 or http://dx.doi.org/10.2139/ssrn.3939909

Justin Callais (Contact Author)

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics, Students ( email )

Box 42132
Lubbock, TX 79409-2132
United States

University of Louisiana at Lafayette - Department of Economics and Finance ( email )

Lafayette, LA 70504
United States

Vincent Geloso

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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