A Note on the Estimation of Intergenerational Income Correlations by the Method of Averaging

Ramses H. Abul Naga

STICERD - Distributional Analysis Research Programme Papers from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: Averaging methods are routinely used in order to limit biases resulting from the mismeasurement of permanent incomes. The Solon/Zimmerman estimator regresses a single-year measurement of the child's resources on a T-period average of the parents' income while the Behrman/Taubman estimator regresses an S-period average of the child's resources on a T-period average of the parents' income. The latter estimator is shown to be the arithmetic mean of the S slope estimates arising from the Solon/Zimmerman methodology. However, because sampling variation produces yearly changes in the variance of children's incomes, it is shown that the Behrman/Taubman estimator is not efficient in the class of estimators which can be expressed as a weighted sum of the S distinct Solon/Zimmerman estimates. The minimum variance estimator in the above class is thus derived and applied to a US sample.

Keywords: Welfare index; inequality; poverty; sample; inference. (search for similar items in EconPapers)
Date: 2001-01

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Related works:
Working Paper: A Note on the Estimation of Intergenerational Income Correlations by the Method of Averaging (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:stidar:54

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