Working Paper: CEPR ID: DP7710
Authors: Andrea Ichino; Loukas Karabarbounis; Enrico Moretti
Abstract: The intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members. While much research has been devoted to measuring this reduced-form parameter, less is known about its underlying structural determinants. Using a model with exogenous talent endowments, endogenous parental investment in children and endogenous redistributive institutions, we identify the structural parameters that govern the intergenerational elasticity of income. The model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility. Two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions. We offer empirical evidence in line with the predictions of the model. We conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico-economic institutions.
Keywords: intergenerational mobility; political institutions; public education
JEL Codes: E24; J62; J68; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public education (H52) | intergenerational mobility (J62) |
| parental investment (J13) | intergenerational elasticity of income (D15) |
| genetic factors (C29) | intergenerational elasticity of income (D15) |
| political institutions (D02) | public spending on education (H52) |
| public spending on education (H52) | intergenerational mobility (J62) |
| politically active wealthy families (P16) | public spending on education (H52) |
| political institutions (D02) | social mobility outcomes (J62) |
| redistributive policies (H23) | social mobility outcomes (J62) |
| political economy (P19) | intergenerational elasticity of income (D15) |