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Is perceived financial inadequacy persistent?

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  • Orcun Kaya

Abstract

type="main"> In an attempt to understand the determinants of financial inadequacy, this paper employs the ability of households to make ends meet as a measure of their perceived financial inadequacy. Using household-level data from the European Community Household Panel covering eight countries over the period from 1994 to 2001, this study applies a dynamic probit model that incorporates both state dependency and individual fixed effects. Exploiting a latterly enhanced bias-corrected fixed-effects probit model, I address the persistent nature of subjective financial inadequacy by directly estimating fixed effects while correcting for incidental parameters and avoiding the initial conditions problem of dynamic models. The results reveal that employing time-invariant individual effects to model subjective monetary perception is essential. However, by controlling for household heterogeneity, income, indebtedness, and health status, I find that in addition to the major differences across European households, country-specific factors can have adverse effects on the persistent nature of perceived financial inadequacy.

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  • Orcun Kaya, 2014. "Is perceived financial inadequacy persistent?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 636-654, December.
    • Handle: RePEc:bla:revinw:v:60:y:2014:i:4:p:636-654
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    3. Chenhong Peng & Paul S. F. Yip & Yik Wa Law, 2020. "What Factors Beyond Economic Poverty Lead People in High-income Societies to Feel Poor? Evidence from Hong Kong," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(3), pages 991-1027, December.
    4. Chenhong Peng & Yik-Wa Law, 2023. "How Do Consumption Patterns Influence the Discrepancy Between Economic and Subjective Poverty?," Journal of Happiness Studies, Springer, vol. 24(4), pages 1579-1604, April.

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