Understanding the Great Gatsby Curve

Steven Durlauf and Ananth Seshadri

NBER Macroeconomics Annual, 2018, vol. 32, issue 1, 333 - 393

Abstract: The Great Gatsby Curve, the observation that for OECD countries greater cross-sectional income inequality is associated with lower mobility, has become a prominent part of scholarly and policy discussions because of its implications for the relationship between inequality of outcomes and inequality of opportunities. We explore this relationship by focusing on evidence and interpretation of an intertemporal Gatsby Curve for the United States. We consider inequality/mobility relationships that are derived from nonlinearities in the transmission process of income from parents to children and the relationship that is derived from the effects of inequality of socioeconomic segregation, which then affects children. Empirical evidence for the mechanisms we identify is strong. We find modest reduced-form evidence and structural evidence of an intertemporal Gatsby Curve for the United States as mediated by social influences.

Date: 2018
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Chapter: Understanding the Great Gatsby Curve (2017)
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