What linear estimators miss: The effects of family income on child outcomes

Katrine V. Løken, Magne Mogstad, Matthew Wiswall

Research output: Contribution to journalArticle

47 Scopus citations

Abstract

We assess the implications of nonlinearity for IV and FE estimation when the estimated model is inappropriately assumed to be linear. Our application is the causal link between family income and child outcomes. Our nonlinear IV and FE estimates show an increasing, concave relationship between family income and children's outcomes. We find that the linear estimators miss the significant effects of family income because they assign little weight to the large marginal effects in the lower part of the income distribution. We also show that the linear IV and FE estimates differ primarily because of different weighting of marginal effects.

Original languageEnglish (US)
Pages (from-to)1-35
Number of pages35
JournalAmerican Economic Journal: Applied Economics
Volume4
Issue number2
DOIs
StatePublished - Apr 1 2012

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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