Geoffrey Brennan, Australian National University and Duke University
Gordon D. Menzies, Economics Discipline Group, University of Technology, Sydney
Michael Munger, Duke University
Working paper number: 17
We explicate an iron law of intergenerational transmission of income dispersion. The same mechanism that limited income disparities, as population and prosperity increased through much of the early industrial revolution, will now sharply exaggerate inequality. The reason is that, for the first time in human history, richer parents are having fewer surviving children. Moreover, the effects of this fact in a setting like the current, where average family size is small and economic growth is strong, are quite marked. The social contract implicit in free market liberalism may require ongoing policy intervention to lean against the scolding winds of inequality.
This paper, uploaded in March 2017, replaces an older version from 2014. The main difference and point of departure is that in the new equation (2) there is an exponential attached to income per child which was lacking in the old version. This change was made as a result of a seminar discussion. The older version is available from the authors on request.
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