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Title: On the Intergenerational Trandmission of Economic Status

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: We present a model of human capital investment within and across generations, with incomplete markets and government transfer programs. Our model combines a fairly standard life-cycle model of human capital with an intergenerational model la Becker and Tomes (1986). The human capital technology features multiple stages of investment during childhood, a college decision, and on-the-job accumulation. The model can jointly explain a wide range of intergenerational relationships, such as the intergenerational elasticities (IGE) of lifetime earnings, education, poverty and wealth, while remaining empirically consistent with cross-sectional inequality. Unlike previous models, intergenerationally constrained families have similar IGEs as the unconstrained families. Exogenous ability transmission has a modest impact on the IGE in partial equilibrium, but this effect disappears in general equilibrium. On the other hand, investment in children and parents human capital have a large impact on the equilibrium IGE. Education subsidies and progressive taxation can significantly reduce the persistence in economic status across generations.

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Authors: Lee, Sang Yoon; Seshadri, Ananth

Publisher: University of Mannheim

Data Collections: IPUMS USA

Topics: Methodology and Data Collection, Other

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