Measuring the effect of spell recurrence on poverty dynamics—evidence from Spain

Abstract

Accounting for the time individuals spend below the poverty line is an important dimension in order to design social policies to fight against poverty. The literature is currently aiming to construct a consistent aggregate measure of poverty over time that takes into account individual income lifetime profiles. It is however, far from clear which aspects of the specific patterns of poverty spells should be included. Using longitudinal data for Spain, this paper shows that the effect of spell recurrence on poverty dynamics is relevant. Poverty exit and re-entry rates vary not only with personal or household characteristics but also with spell accumulation and the duration of current and past spells. In general, our main findings support that an aggregate intertemporal poverty index should incorporate full individual poverty lifetime trajectories accounting for both poverty and non-poverty spell durations.

Understanding poverty persistence in Spain

“…Moreover, as Jenkins (2011) explains: "Markovian models assume that the accumulated impact of a person's history of poverty (and non-poverty) is expressed entirely by last year's poverty status" (Jenkins 2011, p. 332). As already mentioned, Arranz and Cantó (2011), to cite the most recent study of the Spanish case, have shown the importance of duration in poverty dynamics analyses (see also Devicienti and Gualtieri 2007). However, Devicienti (2001) also finds that controlling for unobserved characteristics reduces the importance of duration dependence.…”

“…As can be observed, entry rates fluctuate between 6.17 and 8.18 % while exit rates do so between 31.09 and 41.15 %. However, as similarly pointed out by Arranz and Cantó (2007), there is no clear trend of poverty outflows and inflows throughout the period and it is difficult to distinguish, on a descriptive level, a different sample retention process for those who are poor and not poor at t − 1. 8 Finally, Table 4 presents household income level as a percentage of the median of those individuals entering or escaping poverty, which enables assessment of the income level that is the starting point for a transition.…”

“…The probability of poverty transition prove to be smaller when accounting for time inertia. More recently, Arranz and Cantó (2011) proposed a multi-state multiple transition discrete hazard regression model that controls not only for observed and unobserved heterogeneity but also for the length of the current poverty spell, the time between spells, the occurrence of multiple spells and the accumulation of poverty spells. They find evidence of negative duration dependence-longer poverty spells reduce the probability of exit and increase the rixk of (re)entry.…”

“…However, the paper does not offer a measure of genuine state dependence or an explicit control for attrition. Moreover, in Arranz and Cantó (2011), initial conditions are taken into account by merely adding three variables to their estimation related to the health of the members of the household, the presence of working-age females and the head's unemployment spells in the last 5 years. We believe the methodology used in this paper offers a more precise control.…”

“…Neglecting this time lag between the period to which household income refers (year t − 1) and the period to which household composition and other variables of interest relate (year t) would introduce some bias. Therefore, net household income in year t − 1 is finally constructed as the sum of net personal income reported at t of the individuals that were present in the household at t − 1 (see Debels and Vandecasteele 2005;Arranz and Cantó 2007). 5 This approach makes it possible to build household equivalent income at each year with the household composition (and equivalence scale) referring to the same year.…”