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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2009:19:
Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income

Lars Lefgren (), Matthew Lindquist () and David Sims ()

Abstract: We construct a simple model, consistent with Becker and Tomes (1979), that decomposes the intergenerational income elasticity into the causal effect of financial resources, the mechanistic transmission of human capital, and the role that human capital plays in the determination of fatherís permanent income. We show how a particular set of instrumental variables could separately identify the money and human capital transmission effects. We further outline two instrumental variables methods for bounding the structural parameters of our model in the presence of imperfect instruments. Using data from a thirty-five percent sample of Swedish sons and their fathers, we show that only a minority of the intergenerational income elasticity can be plausibly attributed to the causal effect of fathersí financial resources.

Keywords: financial resources; human capital; intergenerational income elasticity; intergenerational mobility; permanent income; (follow links to similar papers)

JEL-Codes: J62; (follow links to similar papers)

41 pages, December 10, 2009

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