DUGi

Are income poverty and perceptions of financial difficulties dynamically interrelated?

http://dugi.udg.edu/item/http:@@@@hdl.handle.net@@10256@@14474

An individual’s economic ill fare can be assessed both objectively, looking at one’s income with reference to a poverty line, or subjectively, on the basis of the individual’s perceived experience of financial difficulties. Although these are distinct perspectives, income poverty and perceptions of financial difficulties are likely to be interrelated. Low income (especially if it persists) is likely to negatively affect perceptions of financial difficulties and, as recently suggested by the behavioural economics literature, (past) subjective sentiment may in return influence individual’s income generating ability and poverty status. The aim of this paper is to determine the extent of these dynamic cross-effects between both processes. Using Luxembourg survey data, our main result highlights the existence of a feedback effect from past perceived financial difficulties on current income poverty suggesting that subjective perceptions can have objective effects on an individual’s behaviour and outcomes

Ayllón gratefully acknowledges financial support from NEGOTIATE (Horizon 2020, Grant agreement No. 649395) and the Spanish projects ECO2013-46516-C4-1-R, ECO2016-76506-C4-4-R and 2014-SGR-1279 and Fusco from the Luxembourg Fonds National de la Recherche through the funding of the PersiPov project (contract C10/LM/783502) and by core funding for the Luxembourg Institute of Socio-Economic Research (LISER, formerly CEPS/INSTEAD) from the Ministry of Higher Education and Research of Luxembourg

Elsevier