The Causal Effect of Parents’ Schooling on Children’s Schooling in Europe. A New IV Approach.

Abstract

This paper estimates the causal effect of parental education on children’s education in 13 European countries, using representative data from the Survey of Health, Ageing and Retirement in Europe (SHARE). A novel instrumental variable approach is used to solve the endogeneity issue. We combine two instruments: parental birth order (indicator for being a first born) and Compulsory Schooling Laws (CSL). While CSL have been widely used in applied work, our contribution is to introduce parental birth order as instrument in the intergenerational mobility literature. We find that parental education has a positive, large and significant causal effect on children’s education. This finding is robust to the instrument chosen (birth order, CSL, or both), to sample selection and to several robustness checks.