Intergenerational Income Elasticity in Turkey

Abstract

Social scientists have been intrigued by the relationship between generations based on different characteristics. Economists, has been especially interested in measuring intergenerational income elasticity, which looks at the relationship of parents and that of their children when they become adults and gives clue on trends of income inequality. Most of the literature concentrates on the experiences of developed countries and measurement issues. Nevertheless, new studies concerning intergenerational income elasticity is being undertaken in developing countries as the data become increasingly available for these countries. In this vein, there is only one previous study that investigates intergenerational income elasticity for Turkey. Mercan (2012) finds that intergenerational income elasticity is around 0.1 in Turkey, which depicts Turkey as a highly mobile country meaning that children of poor parents have a higher likelihood to have a better income status. However, his study does not depend on a longitudinal dataset, which might make Mercan’s (2012) estimate biased. Following Solon (1992) in using OLS for lower bound and instrumental variable (IV) for upper bound, this study puts forth a new estimate, which relies on a nationally representative and longitudinal dataset for Turkey. The study's estimate for intergenerational income elasticity varies between 0.3 and 0.6, which is much higher than the result of Mercan (2012), indicating that Turkey is a less mobile country than previously foreseen.