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Vulnerability to poverty revisited: flexible modeling and better predictive performance

Author

Listed:
  • Maike Hohberg
  • Katja Landau
  • Thomas Kneib
  • Stephan Klasen
  • Walter Zucchini

Abstract

This paper analyzes several modifications to improve a simple measure of vulnerability as expected poverty. Firstly, in order to model income, we apply distributional regression relating potentially each parameter of the conditional income distribution to the covariates. Secondly, we determine the vulnerability cutoff endogenously instead of defining a household as vulnerable if its probability of being poor in the next period is larger than 0.5. For this purpose, we employ the receiver operating characteristic curve that is able to consider prerequisites according to a particular targeting mechanism. Using long-term panel data from Germany, we build both mean and distributional regression models with the established 0.5 probability cutoff and our vulnerability cutoff. We find that our new cutoff considerably increases predictive performance. Placing the income regression model into the distributional regression framework does not improve predictions further but has the advantage of a coherent model where parameters are estimated simultaneously replacing the original three step estimation approach.

Suggested Citation

  • Maike Hohberg & Katja Landau & Thomas Kneib & Stephan Klasen & Walter Zucchini, 2017. "Vulnerability to poverty revisited: flexible modeling and better predictive performance," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 240, Courant Research Centre PEG.
  • Handle: RePEc:got:gotcrc:240
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    vulnerability to poverty; distributional regression; generalized additive model for location; scale and shape; receiver operating characteristic curve;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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