Past Income Scarcity and Current Perception of Financial Fragility

The aim of this paper is to test whether a temporary experience of income scarcity in the recent past affects the individual’s assessment of financial fragility over time. Using EU-SILC (European Union Statistics on Income and Living Condition) longitudinal data in 2010-2013 period, our results highlight that individuals who transited out of a short spell of scarcity tend to record a lower subjective ability to make ends meet than those who never experienced it during the reference period, even after two years and controlling for the current level of household income. When a more objective measure of household financial health is taken, the effect is weaker and disappears when current income is accounted for. Our results, which are robust to various robustness checks, have implications for public policies since they question the idea that helping people to leave an objective condition of income scarcity is enough to address poverty and social exclusion.