J. Carter Braxton
Nisha Chikhale
Kyle Herkenhoff
Gordon Phillips

We combine the Decennial Census, credit reports, and administrative earnings to create the first panel dataset linking parent’s credit access to the labor market outcomes of children in the U.S. We find that a 10% increase in parent’s unused revolving credit during their children’s adolescence (13 to 18 years old) is associated with 0.28% to 0.37% greater labor earnings of their children during early adulthood (25 to 30 years old). Using these empirical elasticities, we estimate a dynastic, defaultable debt model to examine how the democratization of credit since the 1970s – modeled as both greater credit limits and more lenient bankruptcy – affected intergenerational mobility. Surprisingly, we find that the democratization of credit led to less intergenerational mobility and greater inequality. Two offsetting forces underlie this result: (1) greater credit limits raise mobility by facilitating borrowing and investment among low-income households; (2) however, more lenient bankruptcy policy lowers mobility since low-income households dissave, hit their constraints more often, and reduce investments in their children. Quantitatively, the democratization of credit is dominated by more lenient bankruptcy policy and so mobility declines between the 1970s and 2000s.

Publication Type
Working Paper
File Description
First version, February 24, 2024
JEL Codes
J62: Job, Occupational, and Intergenerational Mobility; Promotion
D15: Intertemporal Household Choice; Life Cycle Models and Saving
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
Decennial Census
credit reports
administrative data