The goal of the project is to contribute to an understanding of what causes cross country differences in intergenerational earnings persistence. I am developing a quantitative economic model to evaluate the importance of five possible sources of earnings persistence: the process, by which ability/family culture is inherited from father to son, market returns to human capital, tax codes, public investment in education, and the tightness of borrowing constraints, preventing parents from investing in educati on. Then I will use my model to perform policy experiments and study optimal public spending on education and the effect of different tax schemes on human capital formation and welfare.
The project is motivated by recent empirical research which document s that the intergenerational persistence of earnings, i.e. the correlation in earnings, between fathers and sons is higher in the US and Britain than in continental Europe, where it is in turn higher than in the Nordic countries. Some potential explanatio ns for this pattern include stronger inheritability of ability/family culture in the US, perhaps due to stronger sorting in the marriage market, greater availability of free high quality education in the Nordic countries, higher market returns to educatio n in the US and Britain, and higher, more progressive, taxation in (Northern) Europe.