Working papers
"Do Parents Propagate Income Inequality among Children? Evidence from Chinese and Swedish Twins”, joint with Sven Oskarsson and Rafael Ahlskog
Economists have devoted a tremendous amount of attention to understanding the role of parents in driving within-family income inequality and the motives behind their decisions. The empirical evidence, however, is mixed. In this paper, we attempt to reconcile these mixed findings using twins data from China and Sweden for the predominant mechanisms emphasized in the literature. Specifically, we first demonstrate that parents tend to invest a similar amount of resources in their children during childhood. By examining how parents make inter vivos transfer decisions, we then show that parents in China tend to reinforce within-family income inequality, whereas parents in Sweden tend to transfer similar amounts to both children. Third, we find that bequests tend to be divided equally among children both in China and Sweden. Fourth, we show that parents with analogous levels of education in China and Sweden tend to have similar attitudes towards within-family income inequality. In particular: parents without a high school diploma tend to reinforce income inequality between their children whereas parents with at least a high school degree tend to transfer similar amounts to both children. As such, depending on the fraction of parents without a high school degree in the population, researchers can find that parents tend to compensate or reinforce income inequality between the children. Finally, exploring motives behind the reinforcing transfers, we show that they are primarily driven by an exchange.
“Understanding the Effect of Parental Education and Financial Resources on the Intergenerational Transmission of Income”
Accepted, Journal of Labor Economics
There are two essential mechanisms in the canonical model of the transmission of income across generations – parents' financial resources and parental education. We provide novel empirical evidence to disentangle the significance of these two mechanisms in explaining the intergenerational transmission of income. Two reforms in Sweden provide us with natural experiments to separately identify the effects of parents' financial resources versus parental education: an educational reform that exogenously changed the level of compulsory schooling and quality of education of the parent generation and a tax reform that exogenously altered parents' net income. Using Swedish administrative data, we first find that a 1,000 SEK increase in parental income – as a result of changes to parental education – leads to a 280 SEK increase in children's income. Second, exploiting the tax reform, we show that a 1,000 SEK increase in parental income, resulting from changes in parents' financial resources, increases children's income by 74 SEK. The relative impacts of these two mechanisms thus suggest that parents' financial resources amount to about 25% of the effect of parental education on children's income. Third, we show that parents' financial resources matter less for sons. Overall, our findings suggest comparatively modest impact of parental financial resources on children's income.
Economists have devoted a tremendous amount of attention to understanding the role of parents in driving within-family income inequality and the motives behind their decisions. The empirical evidence, however, is mixed. In this paper, we attempt to reconcile these mixed findings using twins data from China and Sweden for the predominant mechanisms emphasized in the literature. Specifically, we first demonstrate that parents tend to invest a similar amount of resources in their children during childhood. By examining how parents make inter vivos transfer decisions, we then show that parents in China tend to reinforce within-family income inequality, whereas parents in Sweden tend to transfer similar amounts to both children. Third, we find that bequests tend to be divided equally among children both in China and Sweden. Fourth, we show that parents with analogous levels of education in China and Sweden tend to have similar attitudes towards within-family income inequality. In particular: parents without a high school diploma tend to reinforce income inequality between their children whereas parents with at least a high school degree tend to transfer similar amounts to both children. As such, depending on the fraction of parents without a high school degree in the population, researchers can find that parents tend to compensate or reinforce income inequality between the children. Finally, exploring motives behind the reinforcing transfers, we show that they are primarily driven by an exchange.
“Understanding the Effect of Parental Education and Financial Resources on the Intergenerational Transmission of Income”
Accepted, Journal of Labor Economics
There are two essential mechanisms in the canonical model of the transmission of income across generations – parents' financial resources and parental education. We provide novel empirical evidence to disentangle the significance of these two mechanisms in explaining the intergenerational transmission of income. Two reforms in Sweden provide us with natural experiments to separately identify the effects of parents' financial resources versus parental education: an educational reform that exogenously changed the level of compulsory schooling and quality of education of the parent generation and a tax reform that exogenously altered parents' net income. Using Swedish administrative data, we first find that a 1,000 SEK increase in parental income – as a result of changes to parental education – leads to a 280 SEK increase in children's income. Second, exploiting the tax reform, we show that a 1,000 SEK increase in parental income, resulting from changes in parents' financial resources, increases children's income by 74 SEK. The relative impacts of these two mechanisms thus suggest that parents' financial resources amount to about 25% of the effect of parental education on children's income. Third, we show that parents' financial resources matter less for sons. Overall, our findings suggest comparatively modest impact of parental financial resources on children's income.