Income-(in)dependent equivalence scales and inequality measurement

Dudel Christian (), Garbuszus Jan Marvin (), Ott Notburga () and Martin Werding
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Dudel Christian: 9162Max Planck Institute for Demographic Research, Konrad-Zuse-Str. 1, 18057Rostock, Germany
Garbuszus Jan Marvin: 9142Ruhr-Universität Bochum, Faculty of Social Science, Bochum, Germany
Ott Notburga: 9142Ruhr-Universität Bochum, Faculty of Social Science, Bochum, Germany

German Economic Review, 2021, vol. 22, issue 2, 235-255

Abstract: Most equivalence scales that are applied in research on inequality do not depend on income, even though there is strong empirical evidence that equivalence scales are actually income-dependent. This paper explores the consistency of results derived from income-independent and income-dependent scales. We show that applying income-independent scales when income-dependent scales would be appropriate leads to violations of the transfer principle. Surprisingly, there are some exceptions, but these require unrealistic and strong assumptions. Thus, the use of income-dependent equivalence scales almost always leads to different assessments of inequality than the use of income-independent equivalence scales. Two examples illustrate our findings.

Keywords: equivalence scales; income dependence; independence of base; inequality measurement (search for similar items in EconPapers)
JEL-codes: D63 I32 J18 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/ger-2020-0008

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