Consumption and Income Inequality across Generations

By Giovanni Gallipoli, Hamish Low and Aruni Mitra

http://d.repec.org/n?u=RePEc:hka:wpaper:2020-061&r=dge

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.

Let me rephrase this fascinating paper. Within a family, there is an important degree of persistence in various economic behaviors across generations: earnings, savings and consumption correlate highly. In addition, there is assortitative mating: high earners tend to marry high earners, etc. We also observe that inequality has increased. Is this due to this inter-generational persistence. While this persistence is strong, it is not strong enough to influence aggregate inequality. Other forces drive that.

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