Testing for True State Dependence in Poverty Dynamics

Evidence from several countries is that any household experiencing poverty today is much
more likely to experience it again, which may be due to both true state dependence (TSD)
and unobserved heterogeneity (UH). We deal with UH by specifying two sources of it: (i)
the household’s ability to obtain income in a specific time period and (ii) the way in which
this ability evolves from that time period onwards. We test for TSD using the panel
component of the Italian Survey on Household Income and Wealth (SHIW). After testing
for the ignorability of the massive attrition plaguing the panel and accepting it, we did not
find any sign of TSD.