Short-Lived Shocks with Long-Lived Impacts? Household Income Dynamics in a Transition Economy

In theory, it is possible that the persistent poverty that has emerged in many transition economies, is attributable to underlying, non-convexities in the dynamics of household incomes - such that a vulnerable household will never recover from a sufficiently large, but short-lived shock to its incom...

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Bibliographic Details
Main Authors:	Lokshin, Michael, Ravallion, Martin
Format:	Publications & Research
Language:	en_US
Published:	World Bank, Washington, DC 2015
Subjects:	absolute poverty adjustment process Agriculture autoregression business cycle capital accumulation Cd central planning chronic poverty cumulative distribution function data model data set distribution function distribution functions dynamic panel econometric issues econometric model econometric models Econometrics Economic Development economic dynamics Economic Growth Economic Review Economic Studies Economic theory Endogenous Variable Endogenous variables equations equilibrium equilibrium level exogenous variables explanatory variables famine functional forms General Equilibrium Model GNP growth models household composition household income household incomes household members household size human capital income components income distribution income equation income increase Income Inequality income level income shocks Income Study Inequality insurance Labor market Labor Markets labor productivity LDCs linear Model linear relationship liquidity living standards low incomes macroeconomics Maximum Likelihood method median income multiple equilibria negative impact negative shocks normal distribution optimization POLICY RESEARCH poor poverty dynamics poverty incidence private transfers random effects rapid increase real income real wages Relative poverty serial correlation serial dependence Series Data significant effect Social Policies Social Policy social safety social security surplus labor theoretical models time series transition economies unemployment urban areas Economic shocks Household income Transition economies Economic impact Poverty incidence Panel analysis Nonlinear programming models Multiplier (economics)
Online Access:	http://hdl.handle.net/10986/21298

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Summary:	In theory, it is possible that the persistent poverty that has emerged in many transition economies, is attributable to underlying, non-convexities in the dynamics of household incomes - such that a vulnerable household will never recover from a sufficiently large, but short-lived shock to its income. This happens when there are multiple equilibria in household incomes, such that two households with the same characteristics, can have different incomes in the long run. To test the theory, the authors estimate a dynamic, panel data model of household incomes, with non-linear dynamics, and endogenous attrition. Their estimates, using data for Hungary in the 1990s, exhibit non-linearity in the income dynamics. The authors find no evidence of multiple equilibria. In general, households bounce back from transient shocks, although the process is not rapid.

Short-Lived Shocks with Long-Lived Impacts? Household Income Dynamics in a Transition Economy

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