Heterogeneity or True State Dependence in Poverty: The Tale Told by Twins

Abstract:     
The purpose of this study is to distinguish between two different reasons that poverty could persist on an individual level. This study takes advantage of the similarity within pairs of identical twins to separate family‐specific heterogeneity from true state dependence, where the experience of poverty leads to a higher risk of future poverty. The results, based on a four‐variate probit model, show the importance of true state dependence in poverty. When using a poverty measure based on disposable income, family‐specific heterogeneity explains between 21 and 25 percent of poverty persistence in the Swedish sample of twins.

Number of Pages in PDF File: 23

Keywords: poverty, heterogeneity, state dependence, twins, multivariate probit

JEL Classification: I32, C35, D31

Accepted Paper Series