Children's education and the intergenerational transmission of inequality: a simulation

Data from the 1970 Brazilian Census are used to explore the effects of parents' investments in their children's education on the pattern of future income distribution and on the intergenerational transmission of inequality, using a simulation model. Starting from the observation that the number of children in low-income households is greater on average than the number in high-income households, the paper focuses primarily on whether and how child schooling mediates the effect of the negative relation between income per child and household size on shifts in the income distribution toward greater inequality, and on lack of intergenerational mobility. The paper examines the implications of different assumptions regarding increases in the availability of schooling, shifts in the returns to schooling and the role of inherited traits in the determination of future incomes and intergenerational mobility. Cross-section measures of inequality are insensitive to schooling and inherited traits, but these do affect intergenerational mobility.