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

Author

Listed:
  • Loken, Katrine Vellesen

    (Norwegian School of Economics)

  • Mogstad, Magne

    (University of Chicago)

  • Wiswall, Matthew

    (University of Wisconsin-Madison)

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.

Suggested Citation

  • Loken, Katrine Vellesen & Mogstad, Magne & Wiswall, Matthew, 2010. "What Linear Estimators Miss: Re-Examining the Effects of Family Income on Child Outcomes," IZA Discussion Papers 4971, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4971
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    More about this item

    Keywords

    child development; instrumental variables estimation; family income; linear models; fixed effects estimation; nonlinearities;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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