The Lifecycle of Inequality: Childhood Neighborhoods, Redistribution, and Lifetime Pensions in Finland and Europe

This doctoral dissertation investigates the mechanics of inequality throughout the human lifecycle. It starts from the formation of opportunity in childhood, continues through the mitigation of inequality during working age, and ends with the realization of different life expectancies and pension wealth in retirement. Consisting of an introduction and three essays, the thesis examines these dynamics within the institutional contexts of the Nordic welfare state and Europe.

In the first essay, The Impact of Childhood Neighborhoods on Intergenerational Mobility in Finland, I exploit a movers design to isolate the role of location in determining long-term outcomes. My results remain inconclusive. On the other hand, I find significant exposure effects: every additional year spent in a neighborhood where children have a higher income in adulthood improves a child’s future income. Surprisingly, for the probability of high school matriculation, this seems to be the opposite. Every additional year in a neighborhood with high proportion of children matriculating from high school lowers a child’s own probability of matriculating. These effect sizes are comparable to recent findings from the United States, suggesting that even within the Finnish welfare state characterized by uniform schooling and social security, residential location might still remain a determinant of opportunity. However, the effects disappear with the inclusion of family fixed effects, combined with reduced statistical precision due to sample limitations. The wide confidence intervals include the baseline results and the results of previous literature. Hence, the estimates remain consistent both with the hypothesis that place exerts a causal influence on intergenerational mobility, and with the hypothesis that places do not matter for mobility.

In the second essay co-authored with Markus Jäntti and Jukka Pirttilä, Is Redistribution Fair? The Effect of Taxes and Transfers on Equality of Opportunity, we shift focus to adulthood, analyzing how tax-benefit systems across 31 European countries interact with “inequitable” inequality, that is, inequality arising from circumstances beyond an individual’s control. We find that while redistribution reduces inequitable inequality in all observed countries, the extent of redistribution often exceeds what is required to strictly neutralize the effect of circumstances. This suggests that European fiscal systems prioritize a broad range of objectives that go beyond correcting for unequal opportunities.

In the third essay, Asymmetric Information and Lifetime Pensions in the Finnish Pension System, I examine the final stage of the lifecycle: the decumulation of wealth and insurance against longevity risk. Using administrative data on retirement timing and mortality, I test for adverse selection in the decision to postpone retirement. Although I find evidence that individuals who retire later have longer life expectancies, the fiscal implications of this selection are negligible. The findings indicate that the flexibility of the Finnish pension system does not compromise its fiscal stability by giving extra remuneration to wealthy individuals with longer life expectancies.

Contact Arttu Kauhanen

Email: arttu.kauhanen@helsinki.fi
Homepage: https://sites.google.com/view/arttukauhanen/about