American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
What Linear Estimators Miss: The Effects of Family Income on Child Outcomes
American Economic Journal: Applied Economics
vol. 4,
no. 2, April 2012
(pp. 1–35)
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. (JEL C26, D14, J12, J13)Citation
Løken, Katrine V., Magne Mogstad, and Matthew Wiswall. 2012. "What Linear Estimators Miss: The Effects of Family Income on Child Outcomes." American Economic Journal: Applied Economics, 4 (2): 1–35. DOI: 10.1257/app.4.2.1Additional Materials
JEL Classification
- C26 Single Equation Models: Single Variables: Instrumental Variables (IV) Estimation
- D14 Personal Finance
- J12 Marriage; Marital Dissolution; Family Structure; Domestic Abuse
- J13 Fertility; Family Planning; Child Care; Children; Youth
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