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Poverty and social exclusion: two sides of the same coin or dynamically interrelated processes?

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Devicienti, Francesco; Poggi, Ambra

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Abstract There is growing interest in the analysis and measurement of social exclusion, to complement the static and dynamic literature on income poverty. On theoretical grounds, social exclusion and income poverty are seen as different processes, but with closely interrelated dynamics. However, our empirical understanding of the way these two processes dynamically interact at the individual level is still very limited. To shed some light on the issue, we use a dynamic bivariate probit model, controlling for unobserved heterogeneity and Wooldridge (2005)-type initial conditions. Both first and second order Markov dynamics are examined. We estimate the model using the Italian sample of the ECHP, waves 1-8, and find a sizable extent of state dependence in both poverty and social exclusion. Moreover, there are dynamic cross-effects, implying that poverty and social exclusion are mutually reinforcing. Social policies aimed at eradicating poverty and avoiding individuals' social and economic marginalization should take these interaction effects explicitly into account.
Keywords poverty; measurement; exclusion; social security; Italy; social deprivation; social policy; income
Classification Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods; Social Problems
Method empirical
Free Keywords poverty dynamics; social exclusion; state dependence; dynamic bivariate probit model with random effects
Document language English
Publication Year 2010
Page/Pages 42 p.
Journal Applied Economics (2010)
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)