The Intergenerational Elasticity Of Income Under The Public Education

Intergenerational income elasticity is the correlation between the income of child and that of parent.The higher intergenerational income elasticity means that income of child is affected by that of parent strongly.The lower intergenera-tional income elasticity means that income of child is determined by the earning ability of child.Poor families don't have enough money to invest in children's human capital,the child with lower human capital earns the low income.The government's fiscal expenditure on education,to a certain extent,eases financial difficulties of the poor families on the children's human capital investment.how can we use the theoretical model to analyse the effect of fiscal expenditure on educa-tion on intergenerational income elasticity?Since the last century,our country implemented the strategy relying on science and education to vitalize the na-tion,financial expenditure on education has increased.Does the increasing fiscal expenditure on education promote the intergenerational income mobility?Compared with previous research,this paper mainly contributes in the fol-lowing two aspects:Firstly,in this paper,we use overlapping generation model to analyze inter-generational income elasticity under the private education and public education.the intergenerational income elasticity under public education is smaller than that under the private education.The parents of the poor invest smaller funds on the human capital compared with the parents of the wealth,therefore those persons with small human capital earn less compared with those with much hu-man capital.Difference of human capital investment leads to income differences of their children.Through this mechanism,economic inequality passed on the next generation.under public education,Economic inequality problems can be weakened.Government expenditure on education weakens this difference com-pared with that difference between human capital investment of Poor households and human capital investment of affluent families under the private education.The children of the poor have more human capital under the public education compared with that under the private education,so The children of the poor have higher income.intergenerational mobility of income under the public education is higher than that under the private education.Secondly,in the empirical model,we assume that single income equals to the summation of permanent income and income disturbance;income disturbance satisfies the specifications of white noise,AR(1)and MA(1),yOis+1,yOis+1-?yOis and yOis+2 can be used as the instrumental variables for yOis respectively,where? is the autocorrelation coefficient under AR(1).these instrumental variables can prevent the biased estimation of intergenerational income elasticity.when the fiscal expenditure on education is higher the dummy variable equals one;when the fiscal expenditure on education is smaller the dummy variable equals zero.we introduce a term which is the multiplication of the dummy variable and income of parents in the estimation equation.After we estimate the intergen-erational income elasticity between the income of children in the 2011 and the income of parents in the 2000,we find that intergenerational income elasticity of the provinces with higher fiscal expenditure on education is less 0.3491 than that of the provinces with smaller fiscal expenditure on education.After we es-timate the intergenerational income elasticity between the income of children in the 2011 and the income of parents in the 1997,we find that intergenerational income elasticity of the provinces with higher fiscal expenditure on education is less 0.5058 than that of the provinces with smaller fiscal expenditure on education.After we estimate the intergenerational income elasticity between the income of children in the 2011 and the income of parents in the 1993,we find that inter-generational income elasticity of the provinces with higher fiscal expenditure on education is less 0.3123 than that of the provinces with smaller fiscal expenditure on education.After we estimate the intergenerational income elasticity between the income of children in the 2011 and the income of parents in the 1991,we find that intergenerational income elasticity of the provinces with higher fiscal expenditure on education is less 0.5355 than that of the provinces with smaller fiscal expenditure on education.After we estimate the intergenerational income elasticity between the income of children in the 2011 and the income of parents in the 1989,we find that intergenerational income elasticity of the provinces with higher fiscal expenditure on education is less 0.5350 than that of the provinces with smaller fiscal expenditure on education.