Central Data Catalog

Citation Information

Type Working Paper
Title Explaining Income Inequality and Social Mobility: The Role of Fertility and Family Transfers
Author(s)
Publication (Day/Month/Year) 2015
URL http://www.ecineq.org/ecineq_lux15/FILESx2015/CR2/p140.pdf
Abstract
How much of social mobility and income inequality is due to initial opportunities
relative to adult income risk? Previous studies have yielded very wide estimates due
to data limitations. To provide a more precise answer this article builds on a standard
heterogeneous agent life cycle model with idiosyncratic income shocks. We propose that
fertility differentials between rich and poor households can lead to substantial differences
in the resources available for children, which can be important for their adult outcomes.
Accounting for this is essential for the proper evaluation of initial opportunities, so we
extend the model to introduce the role of families through endogenous fertility, family
transfers and education. We find that initial conditions as of age 13 account for more of
adult income inequality than do labor income shocks. Moreover, fertility differentials and
family transfers are found to account for over 50% of the social mobility in the data.

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