Vipul Bhatt

Like Father, Like Son? Intergenerational Education Mobility in India

Using the nationally representative India Human Development Survey (IHDS), we create a unique son–father matched data set that is representative of the entire adult male population (aged 20–65) in India. We use these data to document the evolution of intergenerational transmission of educational attainment in India over time, among different castes and states for the birth cohorts of 1940–1985. We find that educational persistence, as measured by the regression coefficient of father’s education as a predictor of son’s education, has declined over time. This implies that increases in average educational attainment are driven primarily by increases among children of less-educated fathers. However, we do not find such a declining trend in the correlation between educational attainment of sons and fathers, which is another commonly used measure of persistence. To understand the source of such a discrepancy between the two measures of educational persistence, we decompose the intergenerational correlation and find that although persistence has declined at the lower end of the fathers’ educational distribution, it has increased at the top end of that distribution.

Tough Love and Intergenerational Altruism

This chapter develops and studies a tough love model of intergenerational altruism. We model tough love by modifying the Barro-Becker standard altruism model in two ways. First, the child’s discount factor is endogenously determined, so lower childhood consumption leads to a higher discount factor later in life. Second, the parent evaluates the child’s lifetime utility with a constant high discount factor. Our model predicts that parental transfers will fall when the child’s discount factor falls. This is in contrast with the standard altruism model, which predicts that parental transfers are independent of exogenous changes in the child’s discount factor.

Normative Behavioural Economics Based on Unconditional Love and Moral Virtue

An important difficulty in many models of behavioural economics is that preferences are endogenous and unstable. Therefore, preferences may not provide the most desirable yardstick to evaluate social states. The present paper proposes unconditional love as a candidate for such a yardstick. The concept of unconditional love, although lofty, is often hard to apply for practical policy recommendations. We propose an intermediary learning stage, where learning to unconditionally love is desirable, and policies that promote such learning are deemed to be good. We illustrate the use of this principle in models of endogenous altruism.

Estimating excess sensitivity and habit persistence in consumption using Greenbook forecast as an instrument

In this paper, we revisit the issue of excess sensitivity of consumption to income and address the weak instrument problem that is well documented in this literature. Using quarterly data for the U.S. economy, we first highlight the weak instrument problem by showing that the use of conventional instruments tends to overestimate the share of rule-of-thumb consumers. To address this weak instrument problem, we propose a new instrument for endogenous disposable income growth in the consumption function, namely, the Greenbook forecast of real disposable income growth. We show that this instrument encompasses the information contained in the conventional set of instruments, and is a superior predictor of income growth. We find that using our proposed instrument ameliorates the weak instrument problem and provides a much smaller estimate for the rule-of-thumb consumers. We also extend our empirical framework to allow for habit persistence and provide an estimate for this important parameter of the consumption function. Finally, we use a time-varying specification of consumption function that allows for endogenous regressors, and document a decline in the share of rule-of-thumb consumers and a rise in the habit- persistence parameter in the U.S. over our sample period. We find that an increase in credit growth and supplementary income benefits are negatively correlated with share of rule-of-thumb consumers, whereas they are positively correlated with habit persistence parameter.

Spatial Income Inequality in India, 1993-2011: A District Level Decomposition

Using nationally representative household survey data, and district and state as two levels of aggregation, we examine role of individual and geographical factors in determining the level and the change in income inequality in India. We find that between-state income differences account for the majority of between-district income inequality in rural India in 2011. However, in urban India within-state income differences explain most of the between- district inequality in 2011. We also find that the between-district component accounts for one-third of the increase in total income inequality in rural India between 1993 and 2011. We find significantly smaller level of inequality but similar trends using the consumption expenditure data.

Measuring Trend Inflation and Inflation Persistence for India

In this study we propose a new measure of trend inflation for India. Using monthly data for CPI-IW inflation, we use a multivariate unobserved component model that incorporates information from food and energy prices and provides an estimated trend inflation that we argue is a more reasonable measure of long-run inflation expectations in India. We first show that our measure of trend inflation is superior to other commonly used alternatives in terms of forecasting inflation at longer forecasting horizons. We then highlight the limitations of the RBI’s survey-based expected inflation measure in capturing long-run inflation dynamics. Finally, we provide an estimate of inflation persistence, by estimating a time-varying model of inflation gap defined as the difference between CPI-IW inflation in India and our estimated trend inflation. We find that inflation persistence in India has varied significantly over time, with lower persistence during the Global financial crisis of 2008 followed by an increase in persistence since 2010.

Has Wealth Effect Changed Over Time? Evidence from Four Industrial Countries

In this paper, we use long-run equilibrium relationship between consumption, disposable income, and wealth to estimate wealth effect across four industrial countries: Canada, Germany, the UK, and the USA. We also examine whether wealth effect in these countries has changed over time. Our results indicate that the USA and the Canadian economy have become more sensitive to wealth changes in the recent time period. We find that for each dollar increase in wealth, consumption in the USA increases by 1.8 cents, whereas the corresponding increase in Canada is 2.5 cents. This response was insignificant in the USA before 1969 and in Canada before 1983. The corresponding estimate of wealth effect is one cent for the UK economy for the post-1987 time period. We don’t find any significant evidence for wealth effect in Germany.