Abstract

In an attempt to understand the determinants of financial inadequacy, this paper employs the ability of households to make ends meet as a measure of their perceived financial inadequacy. Using household‐level data from theEuropeanCommunityHouseholdPanel covering eight countries over the period from 1994 to 2001, this study applies a dynamic probit model that incorporates both state dependency and individual fixed effects. Exploiting a latterly enhanced bias‐corrected fixed‐effects probit model,Iaddress the persistent nature of subjective financial inadequacy by directly estimating fixed effects while correcting for incidental parameters and avoiding the initial conditions problem of dynamic models. The results reveal that employing time‐invariant individual effects to model subjective monetary perception is essential. However, by controlling for household heterogeneity, income, indebtedness, and health status,Ifind that in addition to the major differences acrossEuropean households, country‐specific factors can have adverse effects on the persistent nature of perceived financial inadequacy.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call