published in: Journal of Applied Econometrics, 2004, 19 (5), 593-610
We examine the determinants of low income transitions using first-order Markov models that
control for initial conditions effects (those found to be poor in the base year may be a nonrandom
sample) and for attrition (panel retention may also be non-random). Our econometric
model is a form of endogeneous switching regression, and is fitted using simulated maximum
likelihood methods. The estimates, derived from British panel data for the 1990s, indicate that
there is substantial genuine state dependence in poverty. We also provide estimates of low
income transition rates and lengths of poverty and non-poverty spells for persons of different
types.
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