Mar 3, 2014

How institutions facilitate entrepreneurship and intergenerational mobility

This article has provided evidence to suggest improvements in institutional quality can increase income mobility. Economic theory supports these findings because improvements in regulations and a less burdensome economy facilitate income mobility. However, the empirical estimates suggest that lack of corruption and secure property rights are associated with reductions in intergenerational earnings persistence. In short, the dream of income mobility can be supported with high quality institutions, independent of the Great Gatsby Effect
The other hypothesis, that social transfer programs such as government spending on education and healthcare will increase income mobility for a society finds no support. This finding in conjunction with the first suggests that institutions matter (North, 1991) for income mobility by facilitating the entrepreneurial process. In order to allow everyone the opportunity to realize the dream of income mobility, countries must allow sound institutions to foster entrepreneurship. Only then will income mobility persist as a reality and not merely a dream. (p. 13).
From the concluding remarks of this paper by Christopher J. Boudreaux (Journal of Institutional Economics, Feb. 2014). A draft is here

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