Equivalence Scales Declining with Expenditure: Evidence and Implications for Income Distribution

Fabrizio Balli () and Silvia Tiezzi

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: We estimate expenditure dependent equivalence scales for Italian couples with and without children. Following Donaldson and Pendakur (2006) we incorporate the generalized absolute equivalence-scale exactness (GAESE) restrictions into a translated quadratic almost ideal (TQAI) demand system. We obtain declining with expenditure scales, a pattern that tends to strengthen when the number of children increases. This implies that scale economies in current consumption are lower for families with poor expenditure capacities. We also show that families living in the South and the Islands suffer a substantial additional cost to achieve, ceteris paribus, the same well-being of those living in the North. Finally, we find that ignoring the declining with expenditure pattern results in a relevant understatement of measured inequality.

Keywords: Equivalent Expenditure Functions; Equivalence Scales (search for similar items in EconPapers)
JEL-codes: D11 D12 (search for similar items in EconPapers)
Date: 2011-05
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:611

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