Estimating the intergenerational correlation of incomes: an errors in variables framework

Ramses Abul Naga

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The estimation of the intergenerational correlation of incomes is usually carried out by proxying permanent incomes using suitable indicators of economic status, and by treating the resulting measurement error problem using averaging or instrumenting procedures. Here we take the permanent income of the parents' family to be unobserved, but we assume that its determinants are known to the researcher. A two-stage procedure as well as a MIMIC type covariance estimator applied to a US sample of parents and children entail estimates of the order of 0.61 to 0.64 for the coefficient of intergenerational income transmission. OLS estimates this parameter at 0.5. The variance ratio of permanent to total income is also estimated to be in the range of 0.77 to 0.8, implying a correction factor of 1.25 to 1.3 for OLS estimates.

Keywords: Intergenerational mobility; errors in variables (search for similar items in EconPapers)
JEL-codes: I3 J62 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1999-07
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http://eprints.lse.ac.uk/6579/ Open access version. (application/pdf)

Related works:
Working Paper: Estimating the Intergenerational Correlation of Incomes: An Errors in Variables Framework (1999)
Working Paper: Estimating the Intergenerational Correlation of Incomes: An Errors in Variables Framework (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:6579

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