Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data

Melanie Borah, Carina Keldenich and Andreas Knabe

Review of Income and Wealth, 2019, vol. 65, issue 4, 736-770

Abstract: We estimate household equivalence scales, i.e. the needs of additional adults and children relative to a single adult, using income satisfaction data from the German Socio‐Economic Panel. We extend previous studies applying this approach by taking reference income into account. This allows separating needs‐based from reference effects in the determination of income satisfaction. We show that this adjustment helps to overcome a bias causing an overestimation of adults’ and an underestimation of children’s needs‐based equivalence weights. Our results indicate that controlling for income comparisons substantially increases children’s equivalence weight relative to that of adults.

Date: 2019
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https://doi.org/10.1111/roiw.12386

Related works:
Working Paper: Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data (2016)
Working Paper: Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data (2016)
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