Modelling severe material deprivation rates in EU regions using fractional response regression
Modelling severe material deprivation rates in EU regions using fractional response regression

Summary/Abstract: Using Eurostat data for 2016, this study assesses the impact of various economic factors on severe material deprivation rates (SMDR) in European Union (EU) regions. As values of the analysed response variable range between 0 and 1, the study applies fractional regression as well as commonly used linear regression. Results of the extended RESET test indicate that the linear model suffers from misspecification, while there is no reason to reject the hypothesis regarding the adequacy of fractional response models (FRM). Therefore, to assess the unitary impact of explanatory variables on expected values of SMDR, a fractional response regression model with logit link function is used, which enables interpretations of odds ratios. It was found that SMDR is af-fected by regional-level factors such as median equivalised disposable household income, at-risk-of-poverty rate (ARPR), gross domestics product (GDP) per capita, long-term unemployment rate, and country-level drivers such as relative median at-risk-of-poverty gap, income quintile share ratio, and share of social protection expenditure in GDP.

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