Inter-generational effect of parental time and its policy implications

Motivated by the empirical fact that parents with more human capital spend more time teaching and taking care of their children, we develop and estimate a theoretical model in which altruistic parents pass their human capital on in two ways: goods investment and time investment. Based on the estimated model, we quantitatively assess how the two types of investment affect wage inequality and inter-generational mobility. Using the model to study the impacts of a public policy that taxes income to finance public schooling, we find significantly different policy effects in our model than in a model where time investment does not respond endogenously to the policy. (C) 2013 Elsevier B.V. All rights reserved.