Intergenerational Earnings Persistence and the Provision of Public Goods: Evidence from Chile’s Constitutional Process

43 Pages Posted: 18 Oct 2022

See all articles by Javier Cortes-Orihuela

Javier Cortes-Orihuela

University of British Columbia (UBC) - Vancouver School of Economics

Juan Díaz

University of Chile - Department of Management Control and Information Systems

Pablo Gutierrez Cubillos

University of Chile - Department of Management Control and Information Systems

Pablo Troncoso

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Date Written: September 12, 2022

Abstract

This paper studies the relationship between intergenerational economic persistence and preferences for the provision of public goods. Specifically, we develop a simple theoretical model in which a public good is financed through proportional taxation, and that predicts a lower provision of public goods given an increase in the intergenerational earnings elasticity (IGE), which is widely recognized as a measure of the degree of economic persistence from one generation to the next in society. We test this model empirically using the results of the 2020 Chilean national plebiscite, which asked about the replacement of the standing constitution by a new one that would potentially expand the role of the state in the provision of public goods. Our estimates suggest the existence of a positive association between the IGE and the share of the vote against a new constitution, even after controlling for median income and income inequality. These findings are consistent with our model and suggest that sectors of society that exhibit higher degrees of economic persistence also show greater reluctance towards redistributive policies that increase public goods provision.

JEL Classification: J61, J62, P16, D72

Suggested Citation

Cortes-Orihuela, Javier and Díaz, Juan and Gutierrez Cubillos, Pablo and Troncoso, Pablo, Intergenerational Earnings Persistence and the Provision of Public Goods: Evidence from Chile’s Constitutional Process (September 12, 2022). Available at SSRN: https://ssrn.com/abstract=4216026 or http://dx.doi.org/10.2139/ssrn.4216026

Javier Cortes-Orihuela

University of British Columbia (UBC) - Vancouver School of Economics ( email )

6000 Iona Dr
Vancouver, BC V6T 1L4
Canada

Juan Díaz

University of Chile - Department of Management Control and Information Systems

Diagonal Paraguay 257
Santiago, 00001
Chile

Pablo Gutierrez Cubillos

University of Chile - Department of Management Control and Information Systems ( email )

Diagonal Paraguay 257
Santiago, 00001
Chile

Pablo Troncoso (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

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