The scars of scarcity in the short run: an empirical investigation across Europe
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The scars of scarcity in the short run: an empirical investigation across Europe Massimo Baldini1,2 · Giovanni Gallo1,2,3 · Costanza Torricelli1,4,5 Received: 26 August 2019 / Accepted: 10 June 2020 © Springer Nature Switzerland AG 2020
Abstract This paper tests whether a temporary experience of income scarcity in the recent past affects the current perception of financial fragility, and whether this effect varies according to the welfare system of the country of residence. Using EU-SILC (European Union Statistics on Income and Living Condition) longitudinal data in 2010–2013 period, two main results emerge. First, individuals who transited out of a short spell of scarcity tend to record higher financial fragility (as measured by the indicator “ability to make ends meet”) than those who never experienced it, even after controlling for the current level of household income. When a more objective measure of financial fragility is taken (financial burden of total housing costs), the effect is weaker and disappears once current income is accounted for. Second, the scarcity effect on perceived financial fragility differs according to the welfare system, whereby more generous welfare states (i.e. with greater incidence of social expenditure on GDP) appear to reduce the persistence of the effects of past income shocks on current well-being, while the level of targeting is not relevant. These results, which are robust to various robustness checks, support the idea that individual well-being is a multidimensional phenomenon not limited to more objective components such as income or wealth. Our results are in favour of a welfare system which ensures a more generous provision of services and does not focus only on the poorest section of a society. Keywords Income scarcity · Financial fragility · Perception · Coarsened exact matching JEL Classification C25 · D60 · I32
* Giovanni Gallo [email protected] Extended author information available on the last page of the article
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Economia Politica
1 Introduction and literature review Poverty or income scarcity has been characterized by disposable income being below a given poverty line, as defined by social convention or experts (Atkinson 1969).1 The return to a non-scarcity condition by crossing back the poverty line may not be accompanied by a change in the individual perception of the financial fragility of his/her household.2 In fact, while income scarcity is a status objectively measured by income, financial fragility is a less objective and more encompassing condition. In fact, although the literature does not use a single characterization for it, all measures proposed share the inclusions of dimensions other than income (e.g. debt, consumption, wealth) and have a lower degree of objectivity with respect to those used for income scarcity. It follows that income scarcity and perceived financial fragility are connected, but they do not overlap especially when financial fragility is measured by means of a more subjective indicator. The persis
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