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Switching Regression Estimates Of The Intergenerational Persistence Of Consumption

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  • SHENG GUO

Abstract

type="main" xml:id="ecin12094-abs-0001"> The influential economic theory of intergenerational transfers predicts a negative connection between credit constraints and intergenerational mobility of consumption. Existing work has used bequest receipt to signal a parent's access to credit markets when investing in his children's human capital. However, measurement error in bequest receipt generates misclassification error and, in turn, attenuation bias. Employing switching regressions with imperfect sample separation to deal with this error, we show that the intergenerational persistence of consumption in the United States for credit constrained families is much higher than that for unconstrained families, contrary to what the theory implies. This means that children from constrained families are more likely to have consumption levels similar to those of their parents than children from unconstrained families. Our results are robust to the choice of bequest variables and other predictive variables in the switching equation. ( JEL C13, D12, E21, J62)

Suggested Citation

  • Sheng Guo, 2014. "Switching Regression Estimates Of The Intergenerational Persistence Of Consumption," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1503-1524, October.
  • Handle: RePEc:bla:ecinqu:v:52:y:2014:i:4:p:1503-1524
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    File URL: http://hdl.handle.net/10.1111/ecin.2014.52.issue-4
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    Cited by:

    1. Raj Arunachalam & Trevon Logan, 2016. "On the heterogeneity of dowry motives," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(1), pages 135-166, January.

    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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