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Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income

Lars Lefgren, David Sims and Matthew J. Lindquist
Journal of Political Economy
Vol. 120, No. 2 (April 2012), pp. 268-303
DOI: 10.1086/666590
Stable URL: http://www.jstor.org/stable/10.1086/666590
Page Count: 36
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Rich Dad, Smart Dad: Decomposing the Intergenerational Transmission of Income
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Abstract

We construct a simple model, consistent with Becker and Tomes, 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 fathers’ permanent incomes. We show how a particular set of instrumental variables could separately identify the money and human capital transmission effects. Using data from a 35 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 fathers’ financial resources.

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