Measurement and Cross-Country Differences

With an ige of 04 the comparable time will be just 3

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Unformatted text preview: n IGE of 0.4, the comparable time will be just 3 generations. Yet, using these empirical strategies, these studies cannot claim to found that a causal interpretation can be given to the IGE. What is needed is that strategy that allows the separation the intergenerational transmission of income through the investment in schooling mechanism from the inheritability of the other traits. 252 THE REVIEW OF ECONOMICS AND STATISTICS intergenerational mobility.”43 One problem with this approach is that it does not directly measure parents’ ability to finance schooling for their children at the time that such an investment is made. Mulligan’s measure also does not capture inter vivos transfers. Finally, the model focuses solely on an intergenerational budget constraint and does not analyze parents’ potential inability to borrow from their own future income, which may be an important issue in its own right. Gaviria (2002) addresses some of these problems. He also uses the PSID, but categorizes the nonconstrained as those who have actually reported receiving large financial transfers or whose parents have a high net worth. Gaviria also uses a split-sample estimation approach and finds some evidence that intergenerational mobility is in fact lower among borrowing-constrained families. However, the differences are not large, and the samples are too small to find differences in the IGE at the 5% significance level. The SIPP-SER data can bring several clear advantages to this question. First, with a larger sample than the PSID it is easier to detect differences among subgroups when using a sample-splitting strategy. Second, the highly detailed wealth data available in the SIPP make it possible to measure borrowing constraints more directly through net worth. Net worth measures the ability of parents to borrow against their current wealth or to draw down assets in order to finance human capital acquisition for their children. Third, the data on wealth are available for 1984, when the children are between the ages of 16 and 21, and at a time when critical decisions regarding college attendance or continuati...
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This document was uploaded on 02/26/2014 for the course ECON 560 at UBC.

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