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

Abul Naga, Ramses H. (1999) Estimating the intergenerational correlation of incomes: an errors in variables framework. DARP, 44. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 1999 Ramses Abul Naga
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
Journal of Economic Literature Classification System: I - Health, Education, and Welfare > I3 - Welfare and Poverty
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J62 - Job, Occupational, and Intergenerational Mobility
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 44
Date Deposited: 07 Jul 2008 10:47
URL: http://eprints.lse.ac.uk/6579/

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