Household Equivalence Scales: New Australian Estimates from the 1984 Household Expenditure Survey* (original) (raw)
Related papers
The eyuivtilence scule is un importtint parumeter in view of its use in welftire comparisons. This paper investigates sensitivity qf the scale to models. methotls tiritl commotlities. The estimtitioris rringe from sin& rqutitioti. OLS iti case of Engel und Rothburth models to mti.rirnum likrliiiooil iri cmr of drmogruphic JemunJ sytrrns. The rstimiitetl scrilrs jrotn clrtncind smtents genercillv lie between the E n p 4 und Rothhiirtlr scdes. The Equivtilence Sctile E.rtictnrss Ir,vpothesis. cori.sitlerucl tircessciNj7~r interpretutioti ofthe scule cis chill i'ost. sirflers only t i mild rejrctioti. The Airstrtilitiri rviilericr .sii~q,qrsts tlirit rirrik I~L Y I ilrmtrntl moclels. rejected by tlir cltitti. inti! e.rtigx,rr(ite c~liilil cm.vt.r. I Iiitrciclirction The Equivalence Scale seeks to answer questions such as: how much income does a household with two adults and one child need, in relation to a childless couple. to enjoy the same level of 'welfare' as the latter? Notwithstanding severe , conceptual and methodological problems in any interpersonal welfare comparisons (see Sen 1987). let alone those involving the household rather than the individual as the unit of decision making. such comparisons are inevitable in major policy exercises e.g., in the measurement of inequality and poverty, in studying the effects of a set of tax changes on the welfare levels of different house-' holds, in calculating the compensation that a * The research in this paper was supported by P grant from the Australian Research Council. The authors are grateful to Mr Elkana Ngwenya for considerable programming support. Helpful comments from two anonymous referees and from seminar participants at Sydney, Monash. Rome, Verona and Florence Universities on an earlier version are gratefully acknowledged. The disclaimer applies. household with a child requires for the additional cost of that child. etc. The calculation of household equivalence scales ha.. a long and chequered history originating with the pioneering study of Engel (1895) on Belgian working class expenditure data. There has. recently, been renewed and substantial interest in the subject-see Browning (1992) and Nelson (1993) for up-to-date reviews of the literature. Following Pollak and Wales (1979). the recent literature has generated considerable controversy on the interpretation and use of equivalence scales, as conventionally calculated, in welfare comparisons across households (see, also. Fisher 1987, Blackorby and Donaldson 1994). Pollak and Wales (1979) argue that conventional budget data does not provide sufficient information for rneaningful calculation of equivalence scales of the sort that one requires in welfare comparisons. Deaton and Muellbauer (1986). Binh and Whiteford (1990). Pashardes (I99 I), among others, disagree with the Pollak and Wales view and see virtue in conventional calculations on 'cost of children'. I 1998. The Economic Society of Australia.
Economic Record, 1998
The eyuivtilence scule is un importtint parumeter in view of its use in welftire comparisons. This paper investigates sensitivity qf the scale to models. methotls tiritl commotlities. The estimtitioris rringe from sin& rqutitioti. OLS iti case of Engel und Rothburth models to mti.rirnum likrliiiooil iri cmr of drmogruphic JemunJ sytrrns. The rstimiitetl scrilrs jrotn clrtncind smtents genercillv lie between the E n p 4 und Rothhiirtlr scdes. The Equivtilence Sctile E.rtictnrss Ir,vpothesis. cori.sitlerucl tircessciNj7~r interpretutioti ofthe scule cis chill i'ost. sirflers only t i mild rejrctioti. The Airstrtilitiri rviilericr .sii~q,qrsts tlirit rirrik I~L Y I ilrmtrntl moclels. rejected by tlir cltitti. inti! e.rtigx,rr(ite c~liilil cm.vt.r. I Iiitrciclirction The Equivalence Scale seeks to answer questions such as: how much income does a household with two adults and one child need, in relation to a childless couple. to enjoy the same level of 'welfare' as the latter? Notwithstanding severe , conceptual and methodological problems in any interpersonal welfare comparisons (see Sen 1987). let alone those involving the household rather than the individual as the unit of decision making. such comparisons are inevitable in major policy exercises e.g., in the measurement of inequality and poverty, in studying the effects of a set of tax changes on the welfare levels of different house-' holds, in calculating the compensation that a * The research in this paper was supported by P grant from the Australian Research Council. The authors are grateful to Mr Elkana Ngwenya for considerable programming support. Helpful comments from two anonymous referees and from seminar participants at Sydney, Monash. Rome, Verona and Florence Universities on an earlier version are gratefully acknowledged. The disclaimer applies. household with a child requires for the additional cost of that child. etc. The calculation of household equivalence scales ha.. a long and chequered history originating with the pioneering study of Engel (1895) on Belgian working class expenditure data. There has. recently, been renewed and substantial interest in the subject-see Browning (1992) and Nelson (1993) for up-to-date reviews of the literature. Following Pollak and Wales (1979). the recent literature has generated considerable controversy on the interpretation and use of equivalence scales, as conventionally calculated, in welfare comparisons across households (see, also. Fisher 1987, Blackorby and Donaldson 1994). Pollak and Wales (1979) argue that conventional budget data does not provide sufficient information for rneaningful calculation of equivalence scales of the sort that one requires in welfare comparisons. Deaton and Muellbauer (1986). Binh and Whiteford (1990). Pashardes (I99 I), among others, disagree with the Pollak and Wales view and see virtue in conventional calculations on 'cost of children'. I 1998. The Economic Society of Australia.
Household equivalence scales and welfare comparisons
Journal of Public Economics, 1989
The ratio of cost functions of different households facing the same prices and attaining the same utility level is a true cost of (demographic) characteristics index. This index is independent of a base level of income or utility (IB) if and only if it equals a ratio of household equivalence scales that are themselves IB. Applied cost index and equivalence scales specifications are usually IB. This paper describes the general restrictions on cost functions and social welfare functions required for IB scales and for their use in welfare analysis.
Measuring Poverty Changes with Bounded Equivalence Scales: Australia in the 1980s
Economica, 1997
When measuring poverty, an equivalence scale is used to take account of the different income needs of different family types. However, there is little consensus about the choice of scale. A method is presented here that permits general statements about changes in poverty to be made which will be true for a range of equivalence scales. The method is used to describe changes in poverty in Australia between 1981-82 and 1989-90. Different scales lead to estimates of the increase in the head count poverty rate between 1981-82 and 1989-90 of between +1·7 and −0·6 percentage points (at commonly chosen poverty thresholds).
Demand based equivalence scale estimates for Australia and the UK
… PAPERS-NATIONAL INSTITUTE OF ECONOMIC AND …, 2003
This paper compares alternative approaches for estimating equivalence scales from household expenditure data. Discussion focuses upon the limitations of cross-sectional household survey data, and the implications for model estimation. Taking into consideration the biases that are associated with alternative models, a demand system with …xed price e¤ects is identi…ed as the preferred equivalence scale estimation methodology using pooled cross-sectional survey data. The relativities of household expenditure estimated for Australia and the UK are similar, and suggest that there are likely to exist larger economies of scale in the UK.
Equivalent-Income Functions and Income-Dependent Equivalence Scales
1999
This paper presents and investigates two classes of equivalent-income functions that are generalizations of those that correspond to exact (independent-of-base) absolute and relative equivalence scales. They provide less restrictive household demands, especially for children's goods, and have associated absolute and relative equivalence scales that may depend on income. We show that, under certain conditions, equivalent-income functions and the associated income-dependent equivalence scales can be uniquely estimated from demand data. We estimate them using Canadian data and find that the resulting scales are both plausible and income dependent. In addition, the estimated scales are used to measure inequality and we find that they make a significant difference to the level of and trend in measured inequality.
Australian Economic Papers, 2010
This paper proposes and applies an alternative demographic procedure for extending a demand system to allow for the effect of household size and composition changes, along with price changes, on expenditure allocation. The demographic procedure is applied to two recent demand functional forms to obtain their estimable demographic extensions. The estimation on pooled time series of Australian Household Expenditure Surveys yields sensible and robust estimates of the equivalence scale, and of its variation with relative prices. Further evidence on the usefulness of this procedure is provided by using it to evaluate the nature and magnitude of the inequality bias of relative price changes in Australia over a period from the late 1980s to the early part of the new millennium.