Consumption and Income Inequality across Generations

How much of the cross-sectional dispersion of income and consumption can be accounted for by parental heterogeneity and family background? How strong are intergenerational linkages? We examine data on expenditures and income of parent-child pairs and document the presence of significant family persistence in earnings, consumption, saving behaviours, and marital sorting patterns. However, we also show that idiosyncratic (family independent) heterogeneity has a quantitatively bigger role than parental effects for the evolution of cross-sectional inequality.

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Abstract. We characterize the joint evolution of cross-sectional inequality in earnings, other sources of income, and consumption across generations in the U.S. To account for cross-sectional dispersion, we estimate a model of intergenerational persistence and separately identify the influences of parental factors and of idiosyncratic life-cycle components. We find evidence of family persistence in earnings, consumption and saving behaviours, and marital sorting patterns. However, the quantitative contribution of idiosyncratic heterogeneity to cross-sectional inequality is significantly larger than parental effects. Our estimates imply that intergenerational persistence is not high enough to induce further large increases in inequality over time and across generations.

Citation

@techreport{GLM,
  title={Consumption and Income Inequality across Generations},
  author={Gallipoli, Giovanni and Low, Hamish and Mitra, Aruni},
  year={2020},
  institution={Discussion Paper}
}