Understanding poverty persistence in Spain

Abstract

The aim of this paper is to study the mechanisms behind poverty persistence in Spain. We examine the importance of past poverty experiences for explaining current poverty as opposed to observed and unobserved individual heterogeneity. Our results are based on the model proposed by Cappellari and Jenkins (J Appl Econometr 19:593-610, 2004a) that estimates poverty transitions while simultaneously controlling for attrition and initial conditions. We find that about 50% of aggregate state dependence is genuine: poverty in a given year increases in itself the chances of experiencing poverty again in the future. The remainder is explained, among other characteristics, by living with a head of household who has no educational qualifications, being an immigrant or cohabiting with teenagers. Our findings call for a comprehensive and coordinated strategy against poverty that should focus equally on income-support policies and on enhancing those characteristics that best protect against economic hardship. From a methodological point of view, we learn that unobservables affecting initial conditions and sample retention are exogenous to those related to poverty transience. However, results prove to be sensitive to the choice of poverty line