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.     

SIZE-DISTRIBUTION OF EARNINGS AND HOUSEHOLD INCOMES IN SMALL SOCIALIST COUNTRIES

Part I: Availability and meaning of East European distributional statistics are discussed. Part II: Measures of inequality to be used in this study are examined: the Gini coefficient of concentration, though superior to some other single indicators, is found to be an unreliable comparative measure of inequality, and is therefore supplemented by a set of ratios of selected percentiles to the median. Part III: Inequality of full-time gross monthly earnings is measured for (almost) the whole civilian working population and for some subpopulations (selected industries, men, women) in Czechoslovakia and Yugoslavia through 1970, in Hungary through 1968: the observed inequality appears to be less than in small capitalist countries, in spite of the reversal of the socialist egalitarian trend in the 'sixties. The main factor of equalization of socialist earnings are small interoccupational and interregional differentials and a very flat age profile. Part IV: The socio-economic structure of households, the size of samples underlying the distributional statistics, and the composition of household “revenues” (wage and salary earnings, agricultural incomes, social security payments, relatively unimportant property incomes, as well as non-income cash flows) are examined. Inequality coefficients are estimated for per capita revenues of all households as well as subpopulations of households in Czechoslovakia and Hungary, and some information is given on the distribution of household incomes in Yugoslavia. Part V: Limits of desirable equalization of earnings are discussed. With very narrowly dispersed short-term earnings, lifetime earnings tend to be rather unequally distributed because of the variation of earning years among occupations. With largely equalized primary incomes, per capita household incomes tend to be more unequally distributed, in spite of massive transfers, because of the varying ratio of earners to dependents within households. The need of income differentials as incentives to work, the probable trade-off between income equality and economic growth, and socialist distributive principles are outlined.     

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.     

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.     

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.     

Inequality of opportunity in sub-Saharan Africa

Inequality of opportunity is defined as the difference in individuals’ outcome systematically correlated with morally irrelevant pre-determined circumstances, such as ethnicity, socio-economic background, area of birth. This definition has been extensively studied by economists on the assumption that, in addition to being normatively undesirable, it can be related to low potentials for growth. However, empirical estimations of inequality of opportunity require accessing rich data sources, rarely available in poorer countries. In this paper, we exploit 13 consumption household surveys to evaluate inequality of opportunity in 10 Sub-Saharan African countries. According to our results, the portion of total inequality that can be attributed to exogenous circumstances is between 40% and 56% for the generality of countries. Our estimates are significantly higher than what has been found by previous studies. We detect a positive association between total consumption inequality and inequality of opportunity, and we study the different sources of unequal opportunities. The place of birth and the education of the father appear to exert the most relevant role in shaping inequality of opportunity in the region.     

Finance and inequality: Channels and evidence

We provide a framework to interpret the recent literature on financial development and inequality. In many developing countries, access to funding and financial services by firms and households is still very skewed. Recent evidence suggests that poor access does not only reflect economic constraints but also barriers erected by insiders. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established interests in unequal countries. Captured reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized. Financial liberalization motivated to increase access may in practice increase fragility and inequality, and lead to political backlash against reforms. Thus financial reforms may succeed only if matched by a buildup in oversight institutions. Journal of Comparative Economics 35 (4) (2007) 748–773.     

USING FUNCTIONINGS TO ESTIMATE EQUIVALENCE SCALES

Equivalence scales are used to enable welfare comparisons across heterogeneous households. In this paper, we propose to use the achievement of a certain level of functioning as the identifying assumption for the derivation of equivalence scales. This will allow us not only to deal with welfare comparisons between households of different size and composition, but will also enable us to incorporate other characteristics (such as location and employment status) in the creation of equivalence scales for welfare comparisons. The paper applies this approach to create equivalence scales for the functioning “shelter” using Belgian and Italian data. The analysis shows that the income differences associated with different characteristics only play a small role in explaining differences in functionings. An important policy message is therefore that compensating people for functioning shortfalls in monetary terms may not be sensible.     

THE SENSITIVITY OF INCOME INEQUALITY TO CHOICE OF EQUIVALENCE SCALES

To account for the fact that a household's needs depend on its size and composition most studies on income inequality adjust the observed household incomes by equivalence scales. However, since the rationale for choosing a specific scale is rather vague the importance of testing the sensitivity of income inequality estimates to choice of equivalence scales has long been acknowledged. The sensitivity studies in the literature are restricted to equivalence scales that do not depend on the income level of the reference household which means that the effect of a rise in the household size on the scale rate does not depend on whether the household is poor or rich. By using Norwegian micro-data it is shown that the introduction of an income-dependent scale produces results that are in conflict with the widespread view of robustness of results to choice of equivalence scales.     

Deunionization and pay inequality in OECD Countries: A panel Granger causality approach

The impact of unionization on wage inequality has been examined by a vast literature. Focusing mostly on the US and the UK in time series analyses or on OECD countries in panel data analyses, a bulk of these studies have found a negative impact of deunionization (i.e. decline in the union density rate) on distribution of wages. By utilizing two inequality data sets both provided by the University of Texas Inequality Project and the union density data set provided by OECD this paper contributes to the literature, analyzing the causality relationship between deunionization and pay inequality for 24 OECD countries for the 1963–2000 period within a panel Granger structure. Our findings show not only that there is causality from union density to income inequality but also, perhaps more importantly, point out that there is causality running from income inequality to union density for various set of countries and time periods.     

中国城镇居民的财产分配

本文利用住户调查数据对 1 995年的中国城镇住户的财产分配状况进行了经验分析 ,包括对财产分配的差距进行了测量 ,影响财产分配的主要因素进行了估计 ,并将中国城镇住户的财产分配进行了国际比较。与大部分市场经济国家相比 ,中国城镇居民之间财产分配的差距并不大。但是中国城镇居民的财产分配差距超过了收入分配差距 ,而且从长期趋势上可能会出现加速扩大的势头。中国城镇居民之间财产分配的不均等并非全是经济市场化过程的结果。一些不均等的原因来自于传统计划经济遗留下来的分配模式。本文还发现 ,在户主一生中财产积累出现了两个高峰值。这是与正统的生命周期理论不同的。本文还表明了财产分配和收入分配之间的较强相关性。     

Do liberalization and globalization increase income inequality?

Using the Standardized World Income Inequality Database, we examine if the KOF Index of Globalization and the Economic Freedom Index of the Fraser institute are related to within-country income inequality using panel data covering around 80 countries 1970–2005. Freedom to trade internationally is robustly related to inequality, also when adding several control variables and controlling for potential endogeneity using GMM. Social globalization and deregulation is also linked to inequality. Reforms towards economic freedom seem to increase inequality mainly in rich countries, and social globalization is more important in less developed countries. Monetary reforms, legal reforms and political globalization do not increase inequality.     

THE DISTRIBUTION OF WEALTH IN URBAN CHINA AND IN CHINA AS A WHOLE IN 1995

The composition, inequality and determinants of wealth among households in urban China in 1995 are studied. In addition, we compare the wealth distribution in urban China with the wealth distribution in rural China and present the first estimates of inequality in the distribution of household wealth in China as a whole. The results show that housing wealth makes up a large part of net worth in urban China. Most urban Chinese households keep a bank account; debts are unusual. A household's net worth is strongly related to its income and location. Net worth is more unequally distributed among urban households than among rural households. However, compared to the situation in most industrialized countries, net worth in urban China and in China as a whole appear to be rather equally distributed.     

SEQUENTIAL STOCHASTIC DOMINANCE AND THE ROBUSTNESS OF POVERTY ORDERINGS

When comparing poverty across distributions, an analyst must select a poverty line to identify the poor, an equivalence scale to compare individuals from households of different compositions and sizes, and a poverty index to aggregate individual deprivation into an index of total poverty. A different choice of poverty line, poverty index or equivalence scale can of course reverse an initial poverty ordering. This paper develops easily-checked sequential stochastic dominance conditions that throw light on the robustness of poverty comparisons to these important measurement issues. These general conditions extend well-known results to any order of dominance, to the choice of individual versus family based aggregation, and to the estimation of "critical sets" of measurement assumptions. Our theoretical results are briefly illustrated using data for four countries drawn from the Luxembourg Income Study databases.     

On the ambiguous economic freedom–inequality relationship

Previous research on the relationship between economic freedom and income inequality has produced mixed results. We provide a short survey of this literature, identifying potential causes for this empirical heterogeneity. Next, we replicate the results from two significant studies using six alternative measures of income inequality for an updated dataset of up to 112 countries over the period 1970–2010. Notably, we use the latest release of the Standardized World Income Inequality Dataset, which allows us to account for the uncertainty of the estimated Gini coefficients. We find that the results of previous studies are sensitive to the choice of country sample, time period and/or inequality measure used. We conclude with suggestions for future research in the area.     

Engel Scales for Australia, the Philippines and Thailand: A Comparative Analysis

The purpose of this study is to explore the question of how similar or how different are equivalence scales of selected countries in the Asia-Pacific region. In particular, the article investigates whether equivalence scales for Australia, the Philippines and Thailand are comparable. That the Philippines and Thailand are two countries which are strikingly similar in their levels of socioeconomic development suggests the possibility that the relative income needs of households of different sizes in these countries are similar. In contrast, Australia is seen as an industrialised nation unlikely to have scales similar to the two other countries. The comparability problem is addressed via the widely used Engel estimation methodology applied to similarly selected samples and a common model specification. It is found that the level of agreement between the country-specific scales is highly dependent on what ‘basket of necessities’ is used as an indicator of welfare. An interesting outcome that may well be of useful empirical significance is that with necessities defined to include food, clothing, and housing (and possibly, medical care as well), the equivalence scales for the Philippines, Thailand and Australia are more or less invariant; no such regularity exists if the definition of necessities is confined to food alone.     

Top Income Adjustments and Inequality: An Investigation of the EU-SILC†

This paper provides a novel assessment of how the World Inequality Database (WID) top income adjustment applied by Blanchet, Chancel, and Gethin (2021) to European Union Statistics on Income and Living Conditions (EU-SILC) data for 26 countries over 2003–2017 for Distributional National Accounts purposes affects inequality in equivalized gross and disposable household income. On average, the Gini is increased by around 2.4 points for both gross and disposable income, with notable differences across countries but limited impact on trends. EU-SILC countries that rely on administrative register data see relatively small effects on inequality. Comparing with two other recent studies, differences in impacts on measured inequality depend less on the adjustment method and more on whether external data sources are used.     

The role of education and household composition for transitory and permanent income inequality–evidence from PSID data

Transitory and permanent shocks to income have been shown to be important determinants of household consumption. This paper shows that there are significant differences in the trends of transitory and permanent income inequality between demographic groups since the 1980s. Using data from the Panel Study of Income Dynamics, educational attainment and the composition of a household are found to play a key role. While permanent inequality increases steadily for educated households, it is flat over large parts of the sample period for the less educated households. Transitory inequality increases for all households headed by couples whereas it is constant for single households. Altogether, permanent shocks account for a larger part of the income variance of educated households whereas transitory shocks are relatively more important for the less educated. These results are able to shed light on the transmission of changes in income inequality to consumption inequality.     

Revealed community equivalence scales

This paper estimates the equivalence scale revealed by discretionary community allocations of welfare benefits to poor households. I apply the proposed approach to a subsidized rice program in Indonesia in which villages designated program beneficiaries, and estimate the equivalence scale implicit in the beneficiaries they selected. I find that the “revealed community equivalence scale” for this program lies much closer to per capita expenditure than traditional demand-based equivalence scales, particularly in the poorest communities. This suggests that per capita expenditure may be closer to how poor communities actually compare households when allocating aid than previously thought.     

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.