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Dissertation | John A. Knowles


Measuring Lifetime Inequality

Previous studies of intergenerational income mobility (eg Solon,
1992, Zimmerman, 1992), rely on averages of annual income as a measure
of lifetime income. However, given that the way in which income
evolves with age differs by demographic group and education, it is
possible to estimate lifetime income more accurately by estimating
the entire age-income profile. This paper shows that correcting for
heterogeneity of age-income profiles, as well as aggregate and cohort
variation in income, results in measures of inter-generational income
correlation that are substantially higher than previous estimates. The
distribution of lifetime income is found to be much less skewed than
averages of annual income.
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Can Parental Decisions Explain U.S. Wealth Inequality?

Two outstanding puzzles in the literature on the U.S. wealth distribution
are the low level of wealth among the poorest half of U.S.
households, and the extreme concentration in the richest. This paper
asks whether the parental tradeoff betwen quantity of kids and
investment per child can resolve these puzzles by generating a similar
concentration of wealth as the general-equilibrium outcome in a world
where income is partly determined by parental investment in human
and physical capital. The paper estimates lifetime inequality from
U.S panel data and the model is parametrized to match the empirical
relationship between lifetime earnings inequality and family-size
decisions. The results suggest that the apparent low wealth share of
the poorest U.S. households is due to exclusion of children’s human
capital from most measures of wealth, and that fertility decisions help
explain the concentration of wealth in the richest families.
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Social Policy, Equilibrium Poverty andInvestment in Children

Although it is well-known that redistributional social policies can
have perverse long-run effects on the extent and incidence of poverty,
it is not clear from the empirical literature how signi…cant these e.ects
are. This paper uses a dynamic general-equilibrium model calibrated
to US household data to measure the changes in steady-state distributions
of human and physical capital resulting from policy-induced
distortions of parental decisions like fertility and investment in children.
The results include measures of the net benefits by household
income level of redistribution in the short run, and of the distribution
of welfare across households in the long run. Holding constant
the behaviour of children, redistribution makes the poor better o..
However when parents anticipate the response of their children to
redistribution, they invest less in their children’s future, and the long-run
outcome is that all households would be much better off without
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