The Unassuming Economist

One of the most visible stylized facts in contemporary inequality research is the association, across national economies, between measures of cross-section income inequality and intergenerational mobility or persistence. Recent publications of the National Bureau of Economic Research by Cholli and Durlauf (2022) and Durlauf et al (2022) seek to understand the relationship between cross-sectional income inequality and persistence of income across generations (the Great Gatsby Curve, named after Jay Gatsby, protagonist of F. Scott Fitzgerald’s infamous novel who broke through poverty to become a flamboyant millionaire). Five distinct classes of theories, including models on family investments, skills, social influences, political economy, and aspirations are developed, each providing a behavioral mechanism to explain the relationship. Theoretical models imply nonlinear relationships between parent and child status that are often ignored in practice and offer potentially different interpretations of the evidence of heterogeneity in mobility across locations, groups, and time. They conclude with a vision to combine theory with empirics to understand this phenomenon better.