Government spending and intergenerational mobility

The standard model of intergenerational mobility suggests that holding constant endowments, investments in children's human capital increases their future income. If true, the source of the investment should not matter even though almost all research on intergenerational mobility considers only parental investment. Much government spending is intended to reduce the investment gap between rich and poor children. We assess the relationship between government spending and intergenerational economic mobility using data from the Panel Study of Income Dynamics and data on state spending from the U.S. Census of Governments. We find greater intergenerational mobility in high-spending states compared to low-spending states. Two additional findings also suggest that government spending increases intergenerational mobility. First, the difference in mobility between advantaged and disadvantaged children is smaller in high-spending compared to low-spending states and, second, expenditures aimed at low-income populations increase the future income of low-income but not high-income children.