Intergenerational income mobility and economic freedom

Abstract

Numerous studies have found that income inequality reduces the chances of upward relative mobility (i.e., climbing up the income ladder). However, most of this work ignores the role played by institutional quality (namely, economic freedom) in determining mobility and increasing the individual's set of choices. We fill this gap by empirically testing the direct and indirect (through economic growth) impacts of economic freedom on intergenerational income mobility. We find that economic freedom has both direct and indirect effects on intergenerational income mobility, while income inequality is a strong predictor of downward income mobility. When we incorporate findings about the purely mechanical relationship between inequality and intergeneration income mobility, we find that the legal system and property rights component of economic freedom matters more than inequality. These results suggest that good institutions can increase intergenerational income mobility.

How does economic freedom influence public health? Evidence from U.S. cities

“…On the state‐level, Compton et al (2014) show that economic freedom positively contributes to income growth at more quintiles, the results are insignificant for those at the bottom of the income distribution. Callais and Geloso (2021, 2022) find that economic freedom improves income and social mobility. Hall et al (2020), although, find that within the United States, economic freedom widens the gender income gap.…”

“…For instance,Callais and Geloso (2022) find that the legal systems and property rights area of economic freedom is the most critical in explaining upward income mobility.12 On the other hand, measures like state expenditures on health(Hoffer et al, 2019) or health migration(Berta et al, 2022) can be seen as more objective.13 See, for instance, work byBernini and Tampieri (2022), who examine the role of urbanization on happiness.…”

Underperforming reformers: Examining disappointing cases of economic reforms

“…Additionally, Callais and Young (2023) find that increasing economic freedom causally raises incomes across the income distribution. Economic freedom also is a strong predictor of intergenerational income mobility (Callais & Geloso, 2023). There exist plenty of ample evidence on the importance of economic freedom on a variety of outcomes.…”