Hostname: page-component-7c8c6479df-24hb2 Total loading time: 0 Render date: 2024-03-28T20:21:37.577Z Has data issue: false hasContentIssue false

Jumping off of the Great Gatsby curve: how institutions facilitate entrepreneurship and intergenerational mobility

Published online by Cambridge University Press:  06 February 2014

CHRISTOPHER J. BOUDREAUX*
Affiliation:
Department of Economics, Florida State University, 113 Collegiate Loop, Tallahassee, FL 32306, USA

Abstract:

Income inequality is often attributed to declines in income mobility following the Great Gatsby curve, but this relationship is of secondary importance in determining the factors of income mobility if one considers that changing rules is more important than changing outcomes under defined rules. Rather, improvements in institutional quality are hypothesized to increase income mobility by allowing entrepreneurs the freedom to pursue their dreams. This paper is the first to empirically analyze the institutional determinants behind entrepreneurship, and their effect on income mobility. The findings from a cross-country analysis suggest that secure property rights and less corruption are associated with less income persistence, leading to higher income mobility, independent of the Great Gatsby effect. This suggests that reducing corruption and protection of property rights increase income mobility through the channels of entrepreneurship.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Andrews, D. and Leigh, A. (2009), ‘More Inequality, Less Social Mobility’, Applied Economics Letters, 16 (15): 14891492.Google Scholar
Atkinson, A. and Brandolini, A. (2001), ‘Promise and Pitfalls in the Use of Secondary Data-Sets: Income Inequality in OECD Countries as a Case Study’, Journal of Economic Literature, 39 (3): 771799.CrossRefGoogle Scholar
Barro, R. (2000), ‘Inequality and Growth in a Panel of Countries’, Journal of Economic Growth, 5 (1): 532.Google Scholar
Barro, R. J., Mankiw, G., and Sala-i-Martin, X. (1995), ‘Capital Mobility in Neoclassical Models of Growth’, American Economic Review, 85 (1): 103115.Google Scholar
Barro, R. J. and Sala-i-Martin, X. (1992), ‘Convergence’, Journal of Political Economy, 100 (2): 223251.CrossRefGoogle Scholar
Baumol, W. (1990), ‘Entrepreneurship: Productive, Unproductive and Destructive’, Journal of Political Economy 98 (5): 893921.Google Scholar
Becker, G. and Tomes, N. (1979), ‘An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility’, The Journal of Political Economy, 87 (6): 11531189.Google Scholar
Becker, G. and Tomes, N. (1986), ‘Human Capital and the Rise and Fall of Families’, Journal of Labor Economics, 4 (3): 139.CrossRefGoogle ScholarPubMed
Berggren, N. (1999), ‘Economic Freedom and Equality: Friends or Foes?’, Public Choice, 100 (34): 203223.Google Scholar
Berggren, N. (2003), ‘The Benefits of Economic Freedom: A Survey’, The Independent Review, 8 (2): 193212.Google Scholar
Blanden, J., Gregg, P., and Macmillan, L. (2013), ‘Intergenerational Persistence in Income and Social Class: The Effect of Within-Group Inequality’, Journal of the Royal Statistical Society: Series A (Statistics in Society), 176 (2): 541563.Google Scholar
Buchanan, J. M. and Tullock, G. (1962), The Calculus of Consent, Ann Arbor, MI: University of Michigan Press, pp. 306.Google Scholar
Case, A., Angela, F., and Paxson, C. (2005), ‘The Lasting Impact of Childhood Health and Circumstances’, Journal of Health Economics, 24 (2): 365389.Google Scholar
Clark, J. and Lawson, R. (2008), ‘The Impact of Economic Growth, Tax Policy, and Economic Freedom on Income Inequality’, Journal of Private Enterprise, 24 (1): 2331.Google Scholar
Coase, R. H. (1937), ‘The Nature of the Firm’, Economica, 4 (16): 386405.Google Scholar
Corak, M. (2013a), ‘Inequality from Generation to Generation: The United States in Comparison’, in Rycroft, R. (ed.), The Economics of Inequality, Poverty, and Discrimination in the 21st Century, Santa Barbara, CA: ABC-CLIO.Google Scholar
Corak, M. (2013b), ‘Income Inequality, Equality of Opportunity, and Intergenerational Mobility’, The Journal of Economic Perspectives, 27 (3): 79102.Google Scholar
Deininger, K. and Squire, L. (1996), ‘A New Data Set Measuring Income Inequality’, The World Bank Economic Review, 10 (3): 565591.Google Scholar
De Soto, H. (2000), The Mystery of Capital. Why Capitalism Triumphs in the West and Fails Everywhere Else, New York, NY: Basic Books.Google Scholar
Dunn, C. (2007), ‘The intergenerational transmission of lifetime earnings: Evidence from Brazil’, The BE Journal of Economic Analysis & Policy, 7 (2): Article 2.Google Scholar
Eriksson, T., Bratsberg, B., and Raaum, O. (2005), ‘Earnings Persistence Across Generations: Transmission Through Health?’, Department of Economics Working Paper No. 35, Oslo, Norway: University of Oslo.Google Scholar
Esping-Andersen, G. and Wagner, S. (2010), ‘Learnings About Intergenerational Mobility From the EU-SILC Module 2005’, Department of Sociology Working Paper, Barcelona, Spain: Universitat Pompeu Fab.Google Scholar
Faria, H. and Montesinos, H. (2009), ‘Does Economic Freedom Cause Prosperity? An IV Approach’, Public Choice, 141 (1–2): 103127.Google Scholar
Galbraith, J. and Kum, H. (2005), ‘Estimating the Inequality of Household Incomes: A Statistical Approach to the Creation of a Dense and Consistent Global Data Set’, Review of Income and Wealth, 51 (1): 115143.Google Scholar
Gibbons, M. (2011), ‘Intergenerational Economic Mobility in New Zealand’, Policy Quarterly, 7 (2): 5360.Google Scholar
Grawe, N. (2001), ‘Intergenerational Mobility in the US and Abroad: Quantile and Mean Regression Measures’, Ph.D. Dissertation, Department of Economics, University of Chicago.Google Scholar
Gupta, S., Davoodi, H., and Alonso-Terme, R. (2002), ‘Does Corruption Affect Income Inequality and Poverty?’, Economics of Governance, 3 (1): 2345.Google Scholar
Gwartney, J. and Lawson, R. (2012), Economic Freedom of the World 2012 Annual Report, Vancouver, BC: The Fraser Institute.Google Scholar
Hall, R. and Jones, C. (1999), ‘Why do Some Countries Produce so Much More Output per Worker Than Others?’, The Quarterly Journal of Economics, 114 (1): 83116.Google Scholar
Hayek, F. (1960), The Constitution of Liberty, Chicago, IL: University of Chicago Press, pp. 195.Google Scholar
Hertz, T. (2007), ‘Trends in the Intergenerational Elasticity of Family Income in the United States’, Industrial Relations, 46 (1): 2250.Google Scholar
Heston, A., Summers, R., and Aten, B. (2012), Penn World Table Version 7.1, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.Google Scholar
Kaufmann, D., Kraay, A., and Mastruzzi, M. (2011), The Worldwide Governance Indicators (WGI) Project, Washington, DC: WGI World Bank Institute.Google Scholar
Kirzner, I. (1979), Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship, Chicago, IL: University of Chicago Press, pp. 142143.Google Scholar
Ku, H. and Salmon, T. (2012), ‘The Incentive Effects of Inequality: An Experimental Investigation’, Southern Economic Journal, 79 (1): 4670.Google Scholar
Leigh, A. (2007), ‘Intergenerational Mobility in Australia’, The BE Journal of Economic Analysis & Policy, 7 (2): Article 6.Google Scholar
Li, I. (2011), ‘Intergenerational Income Mobility in Taiwan’, Working Paper [unpublished manuscript].Google Scholar
Lillard, L. and Kilburn, R. (1995), ‘Intergenerational Earnings Links: Sons and Daughters’, Labor and Population Working Paper Series 95-17 [unpublished manuscript].Google Scholar
Mayer, S. and Lopoo, L. (2008), ‘Government Spending and Intergenerational Mobility’, Journal of Public Economics, 92 (1): 139158.Google Scholar
Meng, X., Leigh, A., and Gong, C. (2010), ‘Intergenerational Income Mobility in Urban China’, IZA Discussion Papers, No. 4811, Bonn, Germany: Institute for the Study of Labor.Google Scholar
Méon, P. G. and Sekkat, K. (2005), ‘Does Corruption Grease or Sand the Wheels of Growth?Public Choice, 122 (1–2): 6997.Google Scholar
Mulligan, C. (1999), ‘Galton Versus the Human Capital Approach to Inheritance’, The Journal of Political Economy, 107 (6): 184224.CrossRefGoogle Scholar
Ng, I. (2007), ‘Intergenerational Income Mobility in Singapore’, The B.E. Journal of Economic Analysis & Policy, 7 (2): Article 3.Google Scholar
Nolan, B., Esping-Andersen, G., Whelan, C., Maitre, B., and Wagner, S. (2010), ‘The Role of Social Institutions in Inter-generational Mobility’, UCD Geary Institute Discussion Paper Series, Dublin, Ireland: University College Dublin.Google Scholar
North, D. C. (1991), ‘Institutions’, The Journal of Economic Perspectives, 5 (1): 97112.Google Scholar
Nunez, J. and Miranda, L. (2011), ‘Intergenerational Income and Educational Mobility in Urban Chile’, Estudios de Economia, 38 (1): 195221.CrossRefGoogle Scholar
OECD (2010), ‘A Family Affair: Intergenerational Social Mobility Across OECD Countries’, in Economic Policy Reforms: Going for Growth, Chap 5, Pt. 2, Paris Cedex, France: DECD, pp. 183200.Google Scholar
Rawls, J. (1971), A Theory of Justice, Cambridge, MA: Harvard University.Google Scholar
Schnetzer, M. and Altzinger, W. (2013), ‘Intergenerational Transmission of Socioeconomic Conditions in Austria in the Context of European Welfare Regimes’, Momentum Quarterly, 2 (3): 108126.Google Scholar
Sobel, R. (2008), ‘Testing Baumol: Institutional Quality and the Productivity of Entrepreneurship’, Journal of Business Venturing, 23 (6): 641655.Google Scholar
Sokoloff, K. L. and Engerman, S. L. (2000), ‘History Lessons: Institutions, Factors Endowments, and Paths of Development in the New World’, The Journal of Economic Perspectives, 14 (3): 217232.Google Scholar
Solon, G. (1992), ‘Intergenerational Income Mobility in the United States’, The American Economic Review, 82 (3): 393408.Google Scholar
Solon, G. (2002), ‘Cross-Country Differences in Intergenerational Earnings Mobility’, Journal of Economic Perspectives, 16 (3): 5966.Google Scholar
Theologou, A., Christofides, L., Kourtellos, A., and Konstantinos, V. (2009), ‘Intergenerational Income Mobility in Cyprus’, Policy Paper No. 09-09, Nicosia, Cyprus: Economic Centre, University of Cyprus.Google Scholar
Ueda, A. (2009), ‘Intergenerational Mobility of Earnings and Income in Japan,’ B.E. Journal of Economic Analysis and Policy, 9 (1): Article 54.Google Scholar
Vere, J. (2010), ‘Intergenerational Earnings Mobility in Hong Kong’, Working Paper [unpublished manuscript].Google Scholar
Wehner, P. and Beschel, R. (2012), ‘How to think about inequality’, National Affairs, 11: 94115.Google Scholar
Zimmerman, D. (1992), ‘Regression Toward Mediocrity in Economic Stature’, The American Economic Review, 82 (3): 409429.Google Scholar