Uncovering Gatsby Curves

Abstract Empirical findings suggest a positive correlation between inequality and social immobility, a phenomenon coined the (Great) Gatsby curve. However, complete explanations of the phenomenon have not yet been proposed. This paper answers two questions: What are Gatsby curves? When do they exist? We build a theoretical environment in which parental investment and education improve the economic prospects of children. Gatsbian economies and Gatsby curves are formally defined, and we characterize the conditions under which they arise. We show that an economy may go from being Gatsbian to non-Gatsbian, and vice versa. JEL Codes: D31, H52, J31, J62