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Understanding the drivers of low income transitions in Luxembourg

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  • FUSCO Alessio
  • ISLAM Nizamul

Abstract

We analyse the determinants of poverty transitions, defined as movements across a low income threshold, in Luxembourg. Data used are those from the Luxembourg socioeconomic panel ?Liewen zu Lëtzebuerg? (PSELL3) running from 2003 to 2009. Using an endogenous switching first-order Markov model, we control for potential endogeneity to low income transitions due to both initial condition and non random attrition. We find that employment protects from both remaining poor and entering poverty. In addition, attrition and initial low income are found to be endogenous processes with respect to low income transitions. Finally, genuine state dependence accounts for a substantial level of aggregate state dependence.

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Bibliographic Info

Paper provided by CEPS/INSTEAD in its series CEPS/INSTEAD Working Paper Series with number 2012-31.

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Length: 40 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:irs:cepswp:2012-31

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Keywords: poverty dynamics; Luxembourg; Markov transitions models; attrition; initial conditions; state dependence;

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References

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  1. Mary Jo Bane & David T. Ellwood, 1986. "Slipping into and out of Poverty: The Dynamics of Spells," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 21(1), pages 1-23.
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  6. Lorenzo Cappellari & Stephen P. Jenkins, 2004. "Modelling low income transitions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(5), pages 593-610.
  7. Francesco Devicienti, 2001. "Estimating Poverty Persistence in Britain," 10th International Conference on Panel Data, Berlin, July 5-6, 2002, International Conferences on Panel Data B2-3, International Conferences on Panel Data.
  8. Ann Huff Stevens, 1999. "Climbing out of Poverty, Falling Back in: Measuring the Persistence of Poverty Over Multiple Spells," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 34(3), pages 557-588.
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  12. Martin Biewen, 2009. "Measuring state dependence in individual poverty histories when there is feedback to employment status and household composition," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(7), pages 1095-1116.
  13. Simon Burgess & Carol Propper, 1998. "An Economic Model of Household Income Dynamics, with an Application to Poverty Dynamics among American Women," CASE Papers, Centre for Analysis of Social Exclusion, LSE case09, Centre for Analysis of Social Exclusion, LSE.
  14. Simon Burgess & Carol Propper & Matt Dickson, 2006. "The analysis of poverty data with endogenous transitions," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 27(1), pages 75-98, March.
  15. Duncan, Greg J, et al, 1993. "Poverty Dynamics in Eight Countries," Journal of Population Economics, Springer, Springer, vol. 6(3), pages 215-34.
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  17. FAYE Ousmane & ISLAM Nizamul & ZULU Eliya, 2011. "Poverty dynamics in Nairobi's slums: testing for true state dependence and heterogeneity effects," CEPS/INSTEAD Working Paper Series, CEPS/INSTEAD 2011-56, CEPS/INSTEAD.
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Cited by:
  1. FUSCO Alessio, 2013. "The dynamics of perceived financial difficulties," CEPS/INSTEAD Working Paper Series, CEPS/INSTEAD 2013-24, CEPS/INSTEAD.
  2. Sara Ayllón, 2013. "Understanding poverty persistence in Spain," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(2), pages 201-233, June.

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