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Adjusting Incomes for Needs: Can One Avoid Equivalence Scales?

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  • Udo Ebert

    (University of Oldenburg)

  • Patrick Moyes

    (Universite Montesquieu Bordeaux IV)

Abstract

The aim of the paper is to provide guidelines in order to make meaningful comparisons of heterogeneous distributions when incomes are adjusted in order to accommodate differences in needs. We emphasize that the choice of the equivalent income function and the system of weights associated to the equivalent incomes affects significantly the conclusions to be drawn. Introducing simple but intuitively appealing normative conditions, we show that adjusting incomes by a scale factor and weighting the resulting equivalent incomes by the same factor -- as was proposed by Pyatt, ``Social evaluation criteria'', in C. Dagum and M. Zenga (Eds.), Income and Wealth Distribution, Inequality and Poverty, Springer-Verlag, 1990 -- does constitute the only consistent method of making comparisons of relative inequality and/or welfare across populations of heterogeneous households. When the focus is on comparisons in terms of absolute inequality, then lump-sum equivalent income functions and equal weights constitute the only admissible adjustment procedure.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0917.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0917

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References

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  1. Paolo Figini, 1998. "Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition," Economics Technical Papers 988, Trinity College Dublin, Department of Economics.
  2. 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, vol. 44(2), pages 77-124, April.
  3. Udo Ebert, 2000. "Equivalizing Incomes: A Normative Approach," International Tax and Public Finance, Springer, vol. 7(6), pages 619-640, December.
  4. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
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Cited by:
  1. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 175-208, January.
  2. Peter J. Lambert & Xavier Ramos, 2001. "Welfare comparisons: sequential procedures for heterogenous populations," Working Papers wp0114, Department of Applied Economics at Universitat Autonoma of Barcelona.
  3. Julio López-Laborda & Jorge Onrubia, 2005. "Personal Income Tax Decentralization, Inequality, and Social Welfare," Public Finance Review, , vol. 33(2), pages 213-235, March.
  4. Udo Ebert & Patrick Moyes, 2002. "Welfare, inequality and the transformation of incomes the case of weighted income distributions," Journal of Economics, Springer, vol. 9(1), pages 9-50, December.

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