DP15166 Consumption and Income Inequality across Generations

Author(s): Giovanni Gallipoli, Hamish Low, Aruni Mitra
Publication Date: August 2020
Keyword(s): Consumption, Income, inequality, Intergenerational Persistence
JEL(s): D1, D64, E24
Programme Areas: Labour Economics, Public Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15166

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.