What Linear Estimators Miss: Re-Examining the Effects of Family Income on Child Outcomes

Katrine Løken, Magne Mogstad and Matthew Wiswall ()

No 4971, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper uses a rich Norwegian dataset to re-examine the causal relationship between family income and child outcomes. Motivated by theoretical predictions and OLS results that suggest a nonlinear relationship, we depart from previous studies in allowing the marginal effects on children’s outcomes of an increase in family income to vary across the income distribution. Our nonlinear IV and fixed-effect estimates show an increasing, concave relationship between family income and children's educational attainment and IQ. The linear estimates, however, suggest small, if any, effect of family income, because they assign little weight to the large marginal effects at the lower part of the income distribution.

Keywords: child development; instrumental variables estimation; family income; linear models; fixed effects estimation; nonlinearities (search for similar items in EconPapers)
JEL-codes: C21 C23 J13 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2010-05
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Citations: View citations in EconPapers (22)

Published - published in: American Economic Journal: Applied Economics, 2012, 4 (2), 1–35

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https://docs.iza.org/dp4971.pdf (application/pdf)

Related works:
Working Paper: What Linear Estimators Miss: The E ects of Family Income on Child Outcomes (2011)
Working Paper: Linearity in Instrumental Variables Estimation: Problems and Solutions (2010)
Working Paper: How Much Should We Trust Linear Instrumental Variables Estimators? An Application to Family Size and Children's Education (2009)
Working Paper: How Linear Models Can Mask Non-Linear Causal Relationships. An Application to Family Size and Children's Education (2009)
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