Essays in Inequality and Family Economic

This dissertation consists of two chapters, each of them containing an essay that is related to the effects of parental choices on aggregate inequality and intergenerational mobility.;The first chapter, "Explaining Income Inequality and Intergenerational Mobility: The Role of Fertility and Family Transfers," studies the effect of fertility differences across income groups on inequality and mobility. Poor families have more children and transfer less resources to them. This suggests that family decisions about fertility and transfers increase income inequality and dampen intergenerational mobility. To evaluate the quantitative importance of this mechanism, we extend the standard heterogeneous-agent life-cycle model with earnings risk and credit constraints to allow for endogenous fertility, family transfers, and education. The model, estimated to the US in the 2000s, implies that a counterfactual flat income-fertility profile would---through the equalization of initial conditions---reduce intergenerational persistence by 13% and income inequality by about 4%. The impact of a counterfactual constant transfer per child is twice as large.;The second chapter, "The Macroeconomic Consequences of Early Childhood Development Policies," studies the macroeconomic consequences of a large-scale and long-run government program that invests in early childhood development. These consequences depend on intergenerational dynamics, general equilibrium (GE) effects on labor and capital markets, and the deadweight loss of raising taxes to finance the policies. To study these policies, this paper extends a standard GE heterogeneous-agent overlapping-generations macro model with earnings risk and credit constraints to incorporate early childhood investments (parental time and money) and estimates it using US data. We validate the model by performing an RCT evaluation of a short-run small-scale government program that funds early childhood investments and showing that the effects on children's education and adult income in the model are similar to the empirical evidence. We then evaluate a permanent large-scale version of this early childhood program, taking into account GE and taxation effects, and find that it yields a 10% welfare increase (in consumption equivalence terms), reduces inequality by 7%, and increases intergenerational mobility of income by 27%---approximately enough for the US to achieve Canadian or Australian levels of inequality and mobility. Welfare gains are twice the ones obtained by introducing the same early childhood program as a short-run partial-equilibrium policy---similar to an RCT. Although GE and taxation effects reduce the gains by one-tenth each, the long-run change in the distribution of parental characteristics more than compensates for those reductions. Key to this welfare gain is that investing in a child not only improves her skills but also creates a better parent for the next generation. Although earlier generations gain less, welfare gains are positive for every new generation and grow rapidly during the transition.