ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A poverty trap occurs when government-support payments for the poor decline as the poor earn more income. As a result, the poor do not end up with much more income when they work, because the loss of government support largely or completely offsets any income that is earned by working.

Detailed explanation-2: -Azariadis and Stachurski (2005) therefore define a poverty trap as a “self-reinforcing mechanism, which causes poverty to persist.”

Detailed explanation-3: -In the United States, cities like Detroit are good examples of how poverty can turn into a poverty trap. When Detroit lost manufacturing jobs, people with resources moved out of the city, leaving behind poor neighborhoods. More businesses closed, public services experienced cutbacks, and poverty increased.

Detailed explanation-4: -The poverty trap argument, on the other hand, suggests that if wealth shocks are large enough to move individuals above the critical threshold, they will shift permanently to a higher level of wealth.