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Poverty rate and government income transfers: A spatial simultaneous equations approach

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  • Jeanty, P. Wilner
  • Ulimwengu, John Mususa

Abstract

The poverty rate and income transfer are clearly correlated. However, not much research has attempted to determine the causal linkage between the two. Previous research has primarily focused on the poverty-reducing impact of income transfer. In this paper, we apply a simultaneous equation system of spatial regressions to uncover the spatial pattern of the relationship between the poverty rate and income transfer, using a sample of 3,001 U.S. counties. The results are in line with theoretical expectations; they provide evidence of a significant simultaneity effect between the poverty rate and income transfer. Our findings also confirm the presence of significant spatial autocorrelation. Contrary to previous studies, we find that more generous counties tend to do a better job of reducing poverty and that counties with more poor tend to be less generous, creating incentive for the poor to participate in the labor force. Furthermore, counties located in devolution states perform better in both poverty reduction and income transfer. These findings are missing from extant literature that focuses only on the poverty-reducing impact of welfare payments.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1076.

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Date of creation: 2011
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Handle: RePEc:fpr:ifprid:1076

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Keywords: endogeneity; income transfer; Poverty; SHAC; spatial econometrics;

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References

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  1. Caminada, Koen & Goudswaard, Kees & Koster, Ferry, 2010. "Social Income Transfers and Poverty Alleviation in OECD Countries," MPRA Paper 27345, University Library of Munich, Germany.
  2. Gebremeskel H. Gebremariam & Tesfa G. Gebremedhin & Peter V. Schaeffer & Randall W. Jackson, 2008. "A Simultaneous Spatial Panel Data Model of Regional Growth Variation: An Empirical Analysis of Employment, Income, Migration and Local Public Services," Working Papers e07-12, Virginia Polytechnic Institute and State University, Department of Economics.
  3. Haddad, Lawrence James & Zeller, Manfred, 1996. "How can safety nets do more with less?," FCND discussion papers 16, International Food Policy Research Institute (IFPRI).
  4. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  5. Ulimwengu, John M. & Kraybill, David S., 2004. "Poverty Over Time And Location: An Examination Of Metro-Nonmetro Differences," Working Papers 18908, Oregon State University, Rural Poverty Research Center (RPRC).
  6. Timothy Besley & Robin Burgess & Imran Rasul, 2003. "Benchmarking government provision of social safety nets," Social Protection Discussion Papers 27870, The World Bank.
  7. Lars Osberg, 2000. "Poverty in Canada and the United States: measurement, trends, and implications," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 847-877, November.
  8. Robert F. Schoeni & Rebecca M. Blank, 2000. "What has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," NBER Working Papers 7627, National Bureau of Economic Research, Inc.
  9. Hilary W. Hoynes & Marianne E. Page & Ann Huff Stevens, 2006. "Poverty in America: Trends and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 47-68, Winter.
  10. Lung-fei Lee, 2003. "Best Spatial Two-Stage Least Squares Estimators for a Spatial Autoregressive Model with Autoregressive Disturbances," Econometric Reviews, Taylor & Francis Journals, vol. 22(4), pages 307-335.
  11. Linda Lobao & David Kraybill, 2009. "Poverty and Local Governments: Economic Development and Community Service Provision in an Era of Decentralization," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 40(3), pages 418-451.
  12. Harrell Rodgers, 2005. "Evaluating the Devolution Revolution -super-1 ," Review of Policy Research, Policy Studies Organization, vol. 22(3), pages 275-299, 05.
  13. Kelejian, Harry H. & Prucha, Ingmar R., 2007. "HAC estimation in a spatial framework," Journal of Econometrics, Elsevier, vol. 140(1), pages 131-154, September.
  14. Hilary Hoynes, 1993. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP," NBER Working Papers 4407, National Bureau of Economic Research, Inc.
  15. Kelejian, Harry H. & Prucha, Ingmar R., 2004. "Estimation of simultaneous systems of spatially interrelated cross sectional equations," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 27-50.
  16. Barrett, Christopher B. & Swallow, Brent M., 2006. "Fractal poverty traps," World Development, Elsevier, vol. 34(1), pages 1-15, January.
  17. Jeanty, P. Wilner & Partridge, Mark & Irwin, Elena, 2010. "Estimation of a spatial simultaneous equation model of population migration and housing price dynamics," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 343-352, September.
  18. Mark D. Partridge & Dan S. Rickman, 2008. "Distance From Urban Agglomeration Economies And Rural Poverty," Journal of Regional Science, Wiley Blackwell, vol. 48(2), pages 285-310.
  19. Dierk Herzer & Rainer Klump, 2010. "Poverty and government transfers in the United States," Applied Economics Letters, Taylor & Francis Journals, vol. 17(16), pages 1565-1569.
  20. Laura A. Reese, 2006. "Not Just Another Determinants Piece: Path Dependency and Local Tax Abatements," Review of Policy Research, Policy Studies Organization, vol. 23(2), pages 491-504, 03.
  21. Christopher H. Wheeler, 2001. "A Note on the Spatial Correlation Structure of County-Level Growth in the U.S," Journal of Regional Science, Wiley Blackwell, vol. 41(3), pages 433-449.
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