The Dynamics of Perceived Financial Difficulties

Abstract

The perceptions of individuals regarding their own economic situation are sometimes used to measure individuals' welfare or standard of living, thereby complementing the conventional income-based approach. While the importance of using longitudinal data when analysing the determinants of perceptions has recently been emphasized, the question of state dependence-the extent to which the past affects the present-has rarely been accounted for in the subjective economic well-being literature. The main contribution of the current paper is precisely to investigate the issue of state dependence in perceived financial difficulties. The application of an endogenous switching Markov model to data from the Luxembourg socioeconomic panel 'Liewen zu Lëtzebuerg' for the period 2003-2009 leads to the conclusion that there is a sizeable proportion of genuine state dependence, which confirms the importance of appropriately taking into account dynamic issues when modelling subjective variables.

Are income poverty and perceptions of financial difficulties dynamically interrelated?

“…While the literature regarding the analysis of the dynamics of income poverty is large (e.g. Jenkins, 2011), more scarce but still existing regarding the dynamics of perceived financial difficulties (Pudney, 2008, Newman, Delaney, and Nolan, 2008, Kaya, 2013, Fusco, 2013, to our knowledge there are no econometric attempts to characterize the joint dynamics of objective and subjective financial difficulties.…”

“…While analysing the interrelationship of both concepts is interesting per se, it also allows us to analyse the effect of some covariates on both concepts simultaneously. For example, on the basis of separated models applied to the same Luxembourgish sample, Fusco and Islam (2012) find that an additional child aged between 12 and 17 years old increase the probability of entering income poverty while Fusco (2013) finds that it has no effect on the probability of entering perceived financial difficulties. Analysing the impact of the presence of older children on both concepts simultaneoulsy may shed a different light on this result.…”

Studying Healthcare Affordability during an Economic Recession: The Case of Greece

“…The outcome was dichotomized [60]: 0 to denote difficulty (great difficulty; difficulty; or some difficulty; and 1 ease (fairly easily; easily; or very easily) [61]. Health care spending is identified as unaffordable if costs exceed a relative threshold determined by a family's income or, more appropriately, a fraction of a family's available resources [62].…”

Measuring poverty persistence

“…We focus on income poverty. However, relying on other measures of well-being does not change the essence of poverty persistence measurement (see e.g.,Pudney, 2008or Fusco, 2016 for subjective variables).…”