Income-dependent equivalence scales: A fresh look at German micro-data

Income inequality and poverty risks receive a lot of attention in public debates and current research. To make income comparable across different types of households, applying the “(modified) OECD scale” – an equivalence scale with fixed weights for each household type – has become a quasi-standard in research. Instead, we derive a base-dependent equivalence scale allowing for scale weights that vary with income, building on micro-data from Germany. Our results suggest that appropriate equivalence scales are much steeper at the lower end of the income distribution than they are for higher income levels. We illustrate our findings by applying them to data on family income differentiated by household types. It turns out that using income-dependent equivalence scales matters for applied research on income inequality, especially if one is concerned with the composition, not just the size of the population at poverty risk.

Intra-household distribution of resources and income poverty and inequality in Visegrád countries

PurposeThe authors aim to demonstrate the impact of allowing for unequal intra-household distribution of resources on income poverty and income inequality.Design/methodology/approachThe paper applies a collective consumption model to study the intra-household distribution of resources in Visegrád countries (V4). It utilises subjective financial satisfaction as a proxy for indirect utility from individual consumption to estimate the indifference scales within couples instead of the traditional equivalence scale. The European Union Statistics on Income and Living Conditions (EU-SILC) 2013 and 2018 data are applied.FindingsThis study’s results indicate substantial economies of scale from living in a couple that are generally higher than implied by the commonly applied equivalence scale. The sharing rule estimates suggest that at the mean of distribution factors, women receive a consumption share between 0.4 and 0.6; however, some of the results are close to an equal sharing of 0.5. The female consumption share rises with her contribution to household income. Regarding income poverty and inequality, the authors show that both these measures might be underestimated in the traditional approach to equal sharing of resources.Originality/valueThe authors add to the empirics by estimating indifference scales for Czechia (CZ), Hungary (HU), Poland (PL) and Slovakia (SK), countries that have not been involved in previous research.

Estimation of Equivalence Scale and Assessment of Its Impact on Poverty Measurement in Bangladesh

Anti-poverty policies for sustainable development require efficient targeting, for which appropriate poverty lines play a crucial role. In Bangladesh, official poverty lines are estimated with the implicit assumption that there are no economies of scale in household consumption with respect to household size or composition, which raises the question of the accuracy and reliability of the measurement of poverty line. We test the existence of economies of scale, estimate their size, and assess the impact of applying equivalence scale to poverty measurement, using the 2010 Household Income and Expenditure Survey data of Bangladesh. The results confirm the existence of economies of scale in household consumption. Following the model developed by Kakwani and Son, the overall index of economies of scale in household consumption is estimated around 0.85. Modified poverty lines show that under official poverty lines, the probability of being poor is high with respect to household size. The result implies that the poverty head-count ratio(HCR) for households with large number of members might be overestimated in Bangladesh, and that there may be an incentive for low income families to enlarge family size to avail of anti-poverty public transfers.

An Improved Means-Testing Formula for Better Targeting

In Russia, means testing is used to identify low-income households and measure poverty headcount as well as to establish the eligibility of the applicants to targeted social assistance. The current means-testing formula, however, is restricted to comparing the per capita income with the cost of the so-called minimum consumer basket or the standard subsistence income. The authors propose an improved means-testing formula which is claimed to measure the wealth and consumption needs of a household more accurately and more equitably, as it includes a revised equivalence scale and а filter for the possession of certain valuable assets. Based on a representative household survey, which covers three subfederal jurisdictions and has been specifically designed to test the performance of the new formula, the authors measure the contribution of each of the proposed formula modifications and the combined effect of all modifications upon the overall poverty headcount and the total income gap as well as the effects upon the poverty status of selected categories of households. Even though during the modeling phase the poverty threshold had to be raised by 12–16% against the official poverty line effective in the respective jurisdictions in order to eliminate the influence of the proposed equivalence scale on the poverty headcount, the ultimate effect of the new formula, which combines the new equivalence scale and several property filters, is a 25% reduction of poverty. This reduction is mainly due to sorting out the households that own excessive property or cars from the low-income category.

Subjective equivalence scale – cross-country and time differences

Purpose The purpose of this paper is to calculate the subjective equivalence scale and poverty rates for Poland and compare them to equivalence scales in Eastern and Western Europe. Design/methodology/approach The analysis is based on European Union Statistics on Income and Living Conditions data for 2005-2012. In particular, the authors capture the minimum needs income question and, knowing the minimum needs income of each individual’s observation, apply OLS regression controlling for income and household structure to estimate the poverty threshold, equivalence scales and poverty. Findings The subjective equivalence scales for the Euro Zone are constant for the period 2004-2012 and less stable for the CEE countries. The child cost in relation to the cost brought by an additional adult is higher in the CEE countries than in the Euro Zone countries. The subjective poverty rates are lower than the OECD rates. The only exceptions are Latvia, Estonia and Bulgaria. Originality/value The authors extend the analysis made by Bishop et al. (2014) by adding data for the years after 2007 and countries outside the Euro Zone.