10 Aug 16

The Dynamics of Perceived Financial Difficulties.

Authors: FUSCO Alessio.


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.

Reference: FUSCO Alessio. The Dynamics of Perceived Financial Difficulties. Journal of Happiness Studies, 2016, vol. 17, n°4, pp. 1599-1614.

Perception dynamics,
State dependence,
Markov transition models,
Initial conditions

Linked publications
BELLANI Luna, FUSCO Alessio.
In: Conchita D’Ambrosio (Ed.) Handbook of Research on Economic and Social Well-Being. Cheltenham: Edward Elgar Publishing, 2018, pp. 193-205.
AYLLON Sara, FUSCO Alessio.
Journal of Economic Psychology, 2017, vol. 61, pp. 103-114.
AYLLON Sara, FUSCO Alessio
LISER, 2016, Working Papers n°2016-05, 24 p.
RAY Jean-Claude, REINSTADLER Anne.
In: VAN OORSCHOT Wim. Invisible social security revisited. Essays in Honour of Jos Berghman. Lannoo Publishers, 2014, pp. 203-214.