Intergenerational income mobility and public education spending: Evidence from China

Existing studies on intergenerational income mobility have two main flaws: biased downward estimate and omission of government spending. To address these problems, this paper provides the consistent estimate of the intergenerational income elasticity in China, and also extends the standard model by incorporating government spending into it. It is found by IV estimate that China's intergenerational correlation in long-term income is 0.830, and paradoxically, government spending in public education fails to effectively make the society more mobile. However, by measuring the effect of the Compulsory Education Law using the DID method, this paper finds that public education has significantly raised the beneficiaries' income by 43%. Therefore, although public education appears to have a rather restrictive effect in the short run, increase in government spending aimed at poor families helps to mitigate the intergenerational transmission of economic status in the long run.