published in: Economic Journal, 2006, 116 (508), 200-222
Using a variance decomposition framework which provides bounds on the effect of families
and neighbourhoods, we find important effects of family characteristics and residential
location on educational attainment and adult earnings in Norway. Neighbourhoods are less
important than families, as the correlations among siblings are significantly higher than
among children growing up in the same local community. The impact of neighbourhoods is
reduced by half from 1960 to 1970 and we link this result to several policy changes in the
1960s aimed at increasing equality of opportunity in Norway. Neighbour correlations in
Norway are found to be significantly lower than in the United States.
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