EQUIVALENCE SCALES, WELL-BEING, INEQUALITY, AND POVERTY: SENSITIVITY ESTIMATES ACROSS TEN COUNTRIES USING THE LUXEMBOURG INCOME STUDY (LIS) DATABASE

The Luxembourg Income Study (LIS) database on which this article is based offers researchers exciting new possibilities for international comparisons based on household income microdata. Among the choices the LIS microdata allows a researcher, e.g. income definition, income accounting unit, etc., is the choice of family equivalence scale, a method for estimating economic well-being by adjusting income for measurable differences in need.
The range of potential equivalence scales that can and are being used in the ten LIS countries and elsewhere to adjust incomes for size and related differences in need span a wide spectrum. The purpose of this paper is to review the available equivalence scales and to test the sensitivity of various income inequality and poverty measures to choice of equivalence scale using the LIS database. The results of our analysis indicate that choice of equivalence scale can sometimes systematically affect absolute and relative levels of poverty; and inequality and therefore rankings of countries (or population subgroups within countries). Because of these sensitivities, one must carefully consider summary statements and policy implications derived from cross-national comparisons of poverty and/or inequality.     

THE NON-CONSTANCY OF EQUIVALENCE SCALES

Comparisons of households of differing composition are usually achieved through the use of equivalence scales. It is well known that the choice of scales can have considerable impact on the conclusions drawn from studies of welfare and poverty. There is a considerable literature on the theoretical issues relating to equivalence scales, but applied work on income distribution and related areas almost invariably takes scales to be constant irrespective of income. This paper focuses on the relation of scale to income, by applying theoretical analysis to some simple household types. The conclusion is that scales are not constant and that current practice should be changed.     

A CROSS-COUNTRY STUDY OF EQUIVALENCE SCALES AND EXPENDITURE INEQUALITY ON UNIT RECORD HOUSEHOLD BUDGET DATA

Inequality comparisons require equivalence scales to account for differences in household size and composition. The multiplicity of equivalence scale models makes the sensitivity of the inequality calculations to the scale used a significant policy issue. Such an investigation based on unit records of two adult households from Italy, Australia, South Africa, Thailand, Peru, Philippines, India and Tanzania was our principal motivation. The equivalence scale varies across countries and between different types of children. Inequality rankings of countries, though not the inequality decomposition between households of different composition, are robust to the equivalence scale used.     

Accounting for the decline in Spanish household expenditures inequality during the 1980s

In this paper we apply decomposition methods to analyze some of the factors accounting for the decrease in household expenditures inequality in Spain during the 1980s. We adopt a simple one-parameter model in which equivalence scales depend only on household size. Then we propose an inequality decomposition method which minimizes equivalence scales' potential contamination problems. We find that most of the change in overall inequality is due to a reduction in the within-group term in the partition by household size. The bulk of this reduction is accounted for by changes at the lower tail of the distribution in the partitions by the socioeconomic category and educational level of the household head. These two findings are independent of the equivalence scales parameter.     

Estimating inequality in the distribution of welfare using demand models

In this paper two demand models with general household equivalence scales (GES) are estimated. These GES are identifiable, since they have the independence of base utility (IB) or equivalence scales exactness (ESE) property. Estimates of household characteristics adjusted income can then be calculated relative to a specific household type. This “individual equivalent income (IEI) is then used to calculate measures of inequality in the distribution of welfare. As more than one model is estimated, the sensitivity of these estimates to model specification changes can be considered. Comparisons are also made to estimates of inequality based on household income. It is found that absolute inequality is sensitive to model specification, but relative inequality is not. This is true using indices of inequality of the Atkinson (1970), Kolm (1976a,b) and Sen (1973) type, or more general measures of inequality based on estimates of Lorenz curve decile ordinates, constructed using methods introduced by Beach and Davidson (1983). Thus, if absolute measures of inequality are required, these results suggest some further research is required to determine a class of models which is less sensitive to model specification error. However, if only relative measures of inequality are needed, then estimates of inequality appear to be very robust to the choice of model specification.     

DOMINANCE TESTING OF TRANSFERS IN ROMANIA

In this paper we compare the progressivity of different government transfers made to households in Romania. We use distribution free standard errors to examine the difference between concentration curves that may be correlated, and thereafter employ statistical tests that take into account the covariance matrix for the ordinate estimates. In addition, we estimate extended Gini coefficients for the same transfers to check their consistency with the tests of inequality dominance. The results show that almost all transfer payments in Romania are progressive, and that they have an important effect on the distribution of income. Rankings among different transfer payments are, however, not robust. In particular, sensitivity analysis using different household equivalence scales indicates that many results are not consistent across scales, and that lower size elasticities contribute to changes in ranking of Ginis and loss of statistical significance in dominance tests.     

EQUIVALENCE SCALE SENSITIVITY OF POVERTY STATISTICS FOR THE MEMBER STATES OF THE EUROPEAN COMMUNITY

Using microdata from Household Budget Surveys of the Member States of the European Community, this paper examines the sensitivity of poverty statistics with respect to the choice of the equivalence scale. The results show that the ranking of the countries with respect to the overall poverty incidence is hardly affected when different equivalence scales are used. However, the composition of the poor population shows considerable changes when e.g. subjective equivalence scales are used instead of the OECD equivalence scale. The poverty incidence among specific household groups, such as single elderly and households with children, is particularly sensitive to the choice of the equivalence scale.     

Equivalence Scales in an Intertemporal Setting with an Application to the Former West Germany

Equivalence scales provide answers to questions like how much a household with two children needs to spend compared to a couple to attain the same welfare level. These are important questions for child allowances, social benefits and to assess the cost of children over the life-cycle for example. We discuss equivalence scales in an intertemporal setting with uncertainty. To estimate equivalence scales we use a panel from German households (GSOEP) containing subjective data on satisfaction with life and satisfaction with income to represent the welfare level. Because satisfaction is measured on a discrete scale we use limited dependent variable models for panel data in estimation. Using satisfaction with life data we find that larger households do not need any additional income to be as satisfied as a couple. Using satisfaction with income, however, yields equivalence scales that increase with household size.     

RELATIVE INEQUALITY AND POVERTY IN GERMANY AND THE UNITED STATES USING ALTERNATIVE EQUIVALENCE SCALES

We use data from the Luxembourg Income Study to show the sensitivity of measures of relative economic well-being of persons in the U.S. and Germany using official equivalence scales and consumption-based country-specific equivalence scales developed for the two countries. Overall inequality and poverty levels are found not to be sensitive to the equivalence scale used. However, the official German equivalence scale yields quite different results from the others with respect to the relative income and poverty levels of vulnerable groups within the population, especially older single people.     

METHODS OF ESTIMATING HOUSEHOLD EQUIVALENCE SCALES: AN EMPIRICAL INVESTIGATION

This paper presents empirical evidence regarding key assumptions of the Rothbarth and Barten methods of constructing household equivalence scales. The assumption of separability in the Rothbarth model is investigated by examining the implied intra-household allocation of specific goods and by examining studies of economies of scale in household consumption. The assumption of the exogeneity of the distribution parameters in the Barten model is related to the results of empirical studies of clothing expenditures. This paper suggests that empirical evidence fails to support the assumptions maintained in these theoretically sophisticated models of household income equivalence.     

A Comparison of Income and Expenditure Inequality Estimates: The Australian Evidence, 1975–76 to 1993–94

Using Australian unit record data this paper compares income and expenditure inequalities over the period 1975–76 to 1993–94. The study finds inconsistencies between the two inequality movements over much of this period. We also observe differences in the nature of income and consumption disparities. Both approaches show that the 'within group' inequality dominates the 'between group' component when the population is divided into household types. The inequality estimates are sensitive to the equivalence scale used as the household size deflator but not to the cost of living index used as the price deflator.     

收入不平等与家庭借贷行为*——家庭为追求社会地位而借贷的动机真的存在吗

本文利用中国家庭金融调查(CHFS)2011年度的调查数据,考察了收入不平等对家庭借贷行为的影响,并验证了家庭是否存在为追求社会地位而借贷的动机。研究表明：（1）收入不平等并不是影响家庭是否借贷的主要因素,但是对家庭的负债规模存在十分显著的抑制作用;（2）收入不平等的扩大并不会促使中低收入家庭寻求借贷或提升家庭负债规模,我国家庭并不存在为了追求更高的社会地位而进行借贷的动机;（3）收入不平等的扩大有利于高收入家庭获得更多的正规金融借贷,中低收入家庭则会较多地依赖于非正规金融借贷;（4）户主的人口统计学特征、家庭经济特征以及家庭所处地区特征均是影响家庭借贷行为的重要因素,在正规金融和非正规金融市场上,影响家庭借贷行为的因素存在较明显的差异。     

HOUSEHOLDS, STANDARD OF LIVING, AND INEQUALITY

The standard of living of individuals does not depend so much on the income they themselves earn as on the total income of the household to which they belong and how the household organizes the use of its income. It is important to develop methods of income analysis which incorporate the household factor. In income distribution analysis, it is now common to take into consideration household size and composition in relative interpretations of income levels. In this paper it is suggested that the same methodology can be used for the purpose of absolute interpretations of income levels. The result is an alternative to per capita measures of standard of living which is sensitive not only to national income and population size, but also to household formation. This approach is applied to Norwegian data for the period from 1970 to 1986 as to trends in the average standard of living and standard of living inequality, and the redistributive impact of transfer and tax policies.     

A SPECIFICATION SEPARATING FAMILY SIZE AND INDIVIDUAL AGE EFFECTS ON SUBJECTIVE EQUIVALENCE SCALES: A NOTE

This paper analyses the Kapteyn and Van Praag method of estimating equivalence scales with respect to the way family size and age composition are incorporated into the scales according to rank and age of each family member. It becomes evident that the Kapteyn/Van Praag procedure fails to distinguish between household size and individual age effects with the result that personal weights can not be used for recomposition of household types other than wife and husband families, nor can they be interpreted as showing real age dependence of personal income equivalence. For these reasons another specification of the general approach, separating both effects, is outlined. This specification distinguishes between several consumption classes within each household. Within each class, economies of scale are attached to similar individuals while differences in individual need are obtained by comparing individuals with the same rank in the different classes.     

A SIMPLIFIED MODEL FOR SOCIAL WELFARE ANALYSIS: AN APPLICATION TO SPAIN, 1973–74 TO 1980–81

Most of the literature on income distribution has concentrated on inequality. In this paper we introduce a concern for efficiency in a social welfare model. We propose a simple but useful specification which combines three features: (i) the selection of measurement instruments in the relative and the absolute case on the grounds of their properties for applied work; (ii) a procedure to make welfare comparisons across households with different needs, in a model in which equivalence scales depend only on house-hold size; and (iii) the use of household specific statistical price indices to make intertemporal comparisons in real terms. The methodology is applied to the study of the role of prices and demographic effects in the evolution of the standard of living in Spain from 1973–74 to 1980–81.     

HOUSEHOLD NEEDS AND POVERTY: WITH APPLICATION TO SPAIN AND THE U.K.

We examine the sensitivity of U.K.-Spanish poverty comparisons to variations in the dependence of equivalence scales on household size and composition, using evidence from national household budget surveys. We sum up these comparisons using subjective confidence levels. Taking into account the dissimilarities in the distribution of incomes and needs across countries, we find, inter alia , that although the poor are typically more numerous in Spain than in Britain, the actual headcount differences may vary by up to 10 percent of the population when needs allowances are altered, even when kept the same across the two countries. Comparisons of poverty composition across the two countries are also very sensitive to the choice of equivalence scale parameters. Generally, however, the proportion of single adults among the poor is much less important in Spain than in Britain, the reverse being true for households with three or more adults.     

Statics and Dynamics of Income Distribution: An Introductory Survey

Abstract
This article discusses some of the issues involved in making comparisons of income distributions using cross-sectional data and in examining the dynamics of income distribution using longitudinal data. Any study of income distribution must consider the unit of analysis, the time period and the measure of income, and these are the focus of the article. Section 2, on annual incomes, begins with problems of intra-household income sharing and the measure of income used, including household production. Comparisons among households of different size are discussed, involving the choice of equivalence scales, the use of decomposition analysis and more general dominance conditions. The role of value judgments in the use of equivalence scales is stressed. Section 3 is concerned with dynamic aspects of income distribution. It discusses methods of constructing synthetic cohorts for use in simulation exercises, the varieties of longitudinal data available, sample attrition and the unit of analysis. An appendix provides further references to the literature and data sources .     

COMPARISON OF ALTERNATIVE TAX AND TRANSFER TREATMENT OF CHILDREN USING ADULT EQUIVALENCE SCALES

This paper estimates adult equivalence scales in the context of a nonlinear demand system using cross-section individual household data. It then evaluates the treatment of children under the tax allowance and child benefit systems on the basis of the estimated equivalence scales. The results suggest that a child benefit system allowing for economies of scale in the family is consistent with the cost of children implied by the notion of adult equivalence scale.     

THE INCOME UNIT AND THE ANATOMY OF INCOME DISTRIBUTION*

This paper focuses on a neglected aspect of the treatment of the income unit in the construction of size distributions of income. If the size distribution is to be an indicator of the distribution of economic welfare, and if the economic welfare of each individual in society is to count equally, then conventional distributions are inconsistent with individualistic welfare functions. We estimate size distributions with each person's welfare weighted equally, and contrast these results with those weighting each household unit's welfare equally. The choice of weights is shown to affect both the level and the trend in income inequality.     

DIFFERENCES IN NEEDS AND ASSESSMENT OF INCOME DISTRIBUTIONS*

The literatures on the assessment of income distributions and on differences in needs are not well integrated. The theoretical literature providing results about evaluations and comparisons of income distributions does not, in the main, consider the implications of non-income differences between income-receiving units, while the equivalence scale literature providing results about the relationship between living standards, incomes and household composition does not consider distributional implications. The aim of this survey is to go some way towards integrating these separate literatures; to consider how to evaluate and compare income distributions while at the same time taking explicit account of differences in household composition.