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Using Panel Data on Income Satisfaction to Estimate the Equivalence Scale Elasticity

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  • Johannes Schwarze
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    Abstract

    In this paper a new method to estimate the equivalence scale elasticity using individual panel data on income satisfaction will be developed. In contrast to other subjective approaches, the present one benefits from the fact that no direct cardinal individual welfare function has to be specified. In addition, panel data enables different scale use by the respondents to be controlled. The approach gives straightforward evidence: Obviously there is an optimal elasticity at which people feel satisfied with their income.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38498.de/dp227.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 227.

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    Length: 11 p.
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp227

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    Keywords: equivalence scales; income satisfaction; panel data;

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    References

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    1. Burkhauser, Richard V. & Smeeding, Timothy M. & Merz, Joachim, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," MPRA Paper 7229, University Library of Munich, Germany.
    2. Aaberge, Rolf & Melby, Ingrid, 1998. "The Sensitivity of Income Inequality to Choice of Equivalence Scales," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 44(4), pages 565-69, December.
    3. Bruno S. Frey & Alois Stutzer, . "Maximising Happiness?," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 022, Institute for Empirical Research in Economics - University of Zurich.
    4. Joachim Merz & Thesia Garner & Timothy M. Smeeding & Jürgen Faik & David Johnson, 1994. "Two Scales, One Methodology - Expenditure Based Equivalence Scales for the United States and Germany," FFB-Discussionpaper, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg 08, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
    5. van Praag, Bernard M S & Hagenaars, Aldi J M & van Weeren, Hans, 1982. "Poverty in Europe," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 28(3), pages 345-59, September.
    6. Nelson, Julie A, 1992. "Methods of Estimating Household Equivalence Scales: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 38(3), pages 295-310, September.
    7. Nelson, Julie A, 1993. "Household Equivalence Scales: Theory versus Policy?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(3), pages 471-93, July.
    8. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Differences in Needs and Assessment of Income Distributions," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 77-124, April.
    9. Seidl, Christian, 1994. "How sensible is the Leyden individual welfare function of income?," European Economic Review, Elsevier, Elsevier, vol. 38(8), pages 1633-1659, October.
    10. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(414), pages 1067-82, September.
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    Cited by:
    1. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 080, Institute for Empirical Research in Economics - University of Zurich.

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