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The Analysis of Poverty Data with Endogenous Transitions

  • Simon Burgess
  • Carol Propper
  • Matt Dickson

    ()

This paper argues that much interpretation of standard poverty data is flawed. It is common to analyse poverty data broken down by household or economic status. Implicitly it is assumed that people move between different states (for example, single, married, children, no children, etc.) for exogenous reasons. If we allow some economic behaviour into the problem, then such transitions become endogenous and this has implications for modelling. The data are then insufficient to identify the claims made from them. Given that transitions between such states depend on individual characteristics and the parameters of the processes, then the distribution of the characteristics of the individuals in the states will be endogenous. The state average poverty rate will depend on the composition of the individuals in the state as well as the economic impact of being in that state per se. In this paper we (i) illustrate that this analysis is wide-spread among academic work and policy-makers; (ii) set out a simple model with endogenous transitions to make our point, (iii) provide some simulations to show the way this works, and (iv) apply this to FES data for Britain. We show that our argument has empirical content for Britain.

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Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 03/543.

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Length: 35 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:bri:uobdis:03/543
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  1. Simon Burgess & Carol Propper, 1998. "An economic model of household income dynamics, with an application to poverty dynamics among American women," LSE Research Online Documents on Economics 6525, London School of Economics and Political Science, LSE Library.
  2. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
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