THE SENSITIVITY OF INCOME INEQUALITY TO CHOICE OF EQUIVALENCE SCALES

Rolf Aaberge and Ingrid Melby

Review of Income and Wealth, 1998, vol. 44, issue 4, 565-569

Abstract: 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.

Date: 1998
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