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DARP Paper
Modelling Vulnerability in the UK
Sanghamitra Bandyopadhyay and Frank A Cowell
February 2007
Paper No' DARP 089:
Full Paper (pdf)

JEL Classification: D1; D31; I32

Tags: income variability; vulnerability; income dynamics; bhps

In this paper we examine the concept of 'vulnerability' (Townsend 1994) within the context of income mobility of the poor. We test for the dynamics of vulnerable households in the UK using Waves 1 - 12 of the British Household Panel Survey and find that, of three different types of risks that we test for, household-specific shocks and economy-wide aggregate shocks have the greatest impact on consumption, in comparison to shocks to the income stream. Quantile-specific estimates reveal specific quantiles, particularly those around the poverty line which are most susceptible to be vulnerable to shocks to the income stream. The estimates are found to be robust to household composition and year-specific shocks.