Finance and intergenerational mobility: Evidence from US banking reforms

Abstract

We investigate the impact of US banking industry deregulation on intergenerational mobility. In order to do so, we use a quasi-natural experimental research design to investigate how a change in state level bank competition (following geographic deregulation) affects the intergenerational mobility of individuals born to (poorer) families at the lower end of the income distribution. We find that individuals born to poorer families who spend their first years as adults in an area with a more competitive banking system, experience higher mobility relative to counterparts located in areas characterised by lower levels of bank competition. Increased educational opportunities and entrepreneurship are important underlying factors driving the observed increases in intergenerational mobility.