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Measuring State Dependence in Individual Poverty Status: Are there Feedback Effects to Employment Decisions and Household Composition?

  • Martin Biewen

Using a sample of prime-aged men from the German Socio-Economic Panel (GSOEP), this paper examines the effects of past poverty experience on future poverty status, future employment status and household composition. The empirical results suggest that even after controlling for observed and unobserved characteristics, past poverty experience increases the poverty risk of future periods. Moreover, there is evidence that experiencing poverty has a negative effect on future employment behaviour and on household cohesion. Apart from its economic significance, the existence of such feedback effects is interesting from an econometric point of view, as they represent a violation of the strict exogeneity assumption, which is usually invoked in estimating dynamic qualitative response models with unobserved heterogeneity.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41894.de/dp429.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 429.

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Length: 27 p.
Date of creation: 2004
Date of revision:
Handle: RePEc:diw:diwwpp:dp429
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  1. Burgess, Simon & Propper, Carol, 1998. "An Economic Model of Household Income Dynamics, with an Application to Poverty Dynamics among American Women," CEPR Discussion Papers 1830, C.E.P.R. Discussion Papers.
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