Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 650: Heterogeneity or True State Dependence in Poverty - The tale told by twins

William Nilsson ()
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William Nilsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: This study focuses on the persistence of poverty in Sweden. The purpose is to distinguish between two different reasons why poverty could persist on an individual level. By using a sample of identical twins, this study takes advantage of the similarity within pairs of twins to separate family specific heterogeneity from true state dependence, where the experience of poverty leads to a higher risk of future poverty. The results, based on a four variate probit model, show the importance of true state dependence in poverty. When using the information on whether an individual received social assistance as a measure of poverty, family specific heterogeneity explains between 24 and 31 percent of the poverty persistence in the sample.

Keywords: poverty; heterogeneity; state dependence; twins; multivariate probit

JEL-codes: C35; D31; I32

40 pages, April 8, 2005

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