HETEROGENEITY OR TRUE STATE DEPENDENCE IN POVERTY: THE TALE TOLD BY TWINS

Authors


  • Note: The author gratefully acknowledges valuable comments from two anonymous referees, as well as helpful comments from Karl-Gustaf Löfgren, Kurt Brännäs, and Anders Björklund on a previous version of the paper. Financial support from the Wallander–Hedelius–Browaldh Foundation is gratefully acknowledged. All data, except for the identification of the twin sample, came from Statistics Sweden. The twin information came from the Swedish Twin Registry. The Swedish Twin Registry is supported by grants from the Swedish Research Council.

William Nilsson, Department of Applied Economics, University of the Balearic Islands, Ctra Valldemossa Km 7.5, E-07122 Palma de Mallorca, Spain (william.nilsson@uib.es).

Abstract

The purpose of this study is to distinguish between two different reasons that poverty could persist on an individual level. This study takes advantage of the similarity within pairs of identical 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 a poverty measure based on disposable income, family-specific heterogeneity explains between 21 and 25 percent of poverty persistence in the Swedish sample of twins.

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