In search of intergenerational credit constraints among Canadian men:
Quantile versus mean regression tests for binding credit constraints
by Nathan D. Grawe
Family and Labour Studies Division
Analytical
Studies Branch research paper series, No. 158
Several recent papers have
cited non-linearities in the relationship between incomes of parents and their
children as evidence of important intergenerational credit constraints. This paper
argues that any pattern in the conditional expectation function can be justified
by a properly constructed story with credit constraints. This raises questions
about the validity of the approach. Quantile regressions provide an alternative
test.
Using data from Canadian tax files, this paper finds results contrary
to the credit constraints hypothesis; the non-linearities in the regression function
are driven by the low-ability (unconstrained) sons rather than high-ability (potentially
constrained) sons.
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