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The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality

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  • Martin Biewen

Abstract

Using data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in Germany in the eighties and nineties. Special emphasis is given to the separation of permanent and transitory components, the persistence of transitory shocks and their implications for the persistence of poverty and income inequality. The results suggest that 52 to 69 percent of income inequality in West Germany were due to permanent differences between individuals and that poor individuals stayed in poverty for two years on average. In East Germany, the contribution of the permanent component to overall income inequality increased from 20 percent in 1990 to over 70 percent in 1998 and the persistence of poverty rose accordingly. The paper also looks at the special situation of population subgroups such as lone mothers, "double income no kids" households, couples with children and pensioners.

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  • Martin Biewen, 2002. "The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality," Discussion Papers of DIW Berlin 292, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp292
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    More about this item

    Keywords

    Covariance structure; Poverty; Inequality; Mobility;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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