What Linear Estimators Miss: The Effects of Family Income on Child Outcomes

We assess the implications of nonlinearity for IV and FE estimation when the estimated model is inappropriately assumed to be linear. Our application is the causal link between family income and child outcomes. Our nonlinear IV and FE estimates show an increasing, concave relationship between family income and children's outcomes. We find that the linear estimators miss the significant effects of family income because they assign little weight to the large marginal effects in the lower part of the income distribution. We also show that the linear IV and FE estimates differ primarily because of different weighting of marginal effects. (JEL C26, D14, J12, J13)

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What Linear Estimators Miss: Re-Examining the Effects of Family Income on Child Outcomes

SSRN Electronic Journal ◽

10.2139/ssrn.1631106 ◽

2010 ◽

Author(s):

Katrine Vellesen Løken ◽

Magne Mogstad ◽

Matthew Wiswall

Keyword(s):

Family Income ◽

Child Outcomes ◽

Linear Estimators

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Precarious Childhoods: Childhood Family Income Volatility and Mental Health in Early Adulthood

Social Forces ◽

10.1093/sf/soaa020 ◽

2020 ◽

Vol 99 (2) ◽

pp. 672-699

Author(s):

Siwei Cheng ◽

Kyriaki Kosidou ◽

Bo Burström ◽

Charlotte Björkenstam ◽

Anne R Pebley ◽

...

Keyword(s):

Income Distribution ◽

Low Income ◽

Family Income ◽

Negative Impact ◽

Early Adulthood ◽

Mental Wellbeing ◽

Income Volatility ◽

Negative Effect ◽

Low Income Families ◽

The Impact

Abstract The rise of income volatility in western countries has been extensively documented in the literature, but empirical research has just started to examine how childhood exposure to family income volatility affects subsequent wellbeing. This study takes advantage of several nation-wide, population registers from Sweden with linkages within and across generations to examine the intergenerational impact of childhood family income volatility on psychiatric disorders in early adulthood. In addition to the population-average effects, we also examine the heterogeneity in the impact of family income volatility for families at the top, bottom, and middle of the family income distribution. Our results suggest that after controlling for a set of family- and child-level characteristics, childhood family income volatility has a negative effect on mental wellbeing, and this finding is consistent across a range of psychiatric outcomes. Furthermore, we show that while children from low-income families exhibit the greatest likelihood of psychiatric disorder, children from families in the middle of the income distribution experience the greatest negative impact of income volatility.

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