The Great Gatsby Curve

Abstract

This paper provides a synthesis of theoretical and empirical work on the Great Gatsby Curve, the positive empirical relationship between cross-sectional income inequality, and persistence of income across generations. We present statistical models of income dynamics that mechanically give rise to the relationship between inequality and mobility. Five distinct classes of theories are developed, including models on family investments, skills, social influences, political economy, and aspirations, each providing a behavioral mechanism to explain the relationship. Finally, we review empirical studies that provide evidence of the curve for a range of contexts and socioeconomic outcomes as well as explore evidence on mechanisms.