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Two Scales, One Methodology - Expenditure Based Equivalence Scales for the United States and Germany

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  • Merz, Joachim
  • Garner, Thesia
  • Smeeding, Timothy M.
  • Faik, Jürgen
  • Johnson, David

Abstract

Choosing an appropriate equivalence scale is a prerequisite for comparisons of economic wellbeing income distribution, inequality or poverty. This is true for country specific work or for cross-national comparisons. Researchers generally either use a country specific equivalence scale (social assistance, expert based, or poverty scales), or adopt a single scale for all comparison across countries. Here we follow a different approach. We use microdata to estimate equivalence scales based on a revealed preference consumption approach for West Germany and the United States. We review several approaches and rely on a complete demand system approach, which provides constant utility based equivalence scales using an extended linear expenditure system (ELES). The multiple equation expenditure system takes into account a full market basket with all its interdependencies and relative prices. Our consumption-based equivalence results are compared to alternative consumption based measures, expert based measures, and subjective based measures in use in both countries and to other scales used for cross-national comparisons.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7233.

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Date of creation: Apr 1994
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Handle: RePEc:pra:mprapa:7233

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Keywords: alternative equivalence scale; Germany; USA; distribution of income; inequality; poverty;

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  1. Kapteyn, A.J. & Kooreman, P. & Willemse, R., 1987. "Some methodological issues in the implementation of subjective poverty definitions," Research Memorandum 245, Tilburg University, Faculty of Economics and Business Administration.
  2. BLACKORBY, Charles & BOSSERT, Walter, 2004. "Interpersonal Comparisons of Well-Being," Cahiers de recherche 2004-06, Universite de Montreal, Departement de sciences economiques.
  3. de Vos, Klaas & Garner, Thesia I, 1991. "An Evaluation of Subjective Poverty Definitions: Comparing Results from the U.S. and the Netherlands," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(3), pages 267-85, September.
  4. 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, vol. 28(3), pages 345-59, September.
  5. Tsakloglou, Panos, 1991. "Estimation and Comparison of Two Simple Models of Equivalence Scales for the Cost of Children," Economic Journal, Royal Economic Society, vol. 101(405), pages 343-57, March.
  6. Gronau, Reuben, 1988. "Consumption Technology and the Intrafamily Distribution of Resources:," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1183-1205, December.
  7. 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.
  8. Bojer, Hilde, 1977. "The effect on consumption of household size and composition," European Economic Review, Elsevier, vol. 9(2), pages 169-193.
  9. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October.
  10. Muellbauer, John, 1977. "Testing the Barten Model of Household Composition Effects and the Cost of Children," Economic Journal, Royal Economic Society, vol. 87(347), pages 460-87, September.
  11. Bradbury, Bruce, 1994. "Measuring the Cost of Children," Australian Economic Papers, Wiley Blackwell, vol. 33(62), pages 120-38, June.
  12. Singh, Balvir & Nagar, A L, 1973. "Determination of Consumer Unit Scales," Econometrica, Econometric Society, vol. 41(2), pages 347-55, March.
  13. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
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Cited by:
  1. Ulrich Widmaier & Hiltrud Niggemann & Joachim Merz, 1994. "What makes the Difference between Unsuccessful and Successful Firms in the German Mechanical Engineering Industry?," FFB-Discussionpaper 11, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  2. Leonardo Becchetti & Elena Giachin Ricca & Alessandra Pelloni, 2009. "Children, happiness and taxation," Econometica Working Papers wp12, Econometica.
  3. Stich, Andreas, 1997. "Poverty and life cycle effects: A nonparametric analysis for Germany," Discussion Papers in Statistics and Econometrics 5/96 [rev.], University of Cologne, Department for Economic and Social Statistics.
  4. 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 16295, University Library of Munich, Germany.
  5. Merz, Joachim, 1995. "MICSIM : Concept, Developments and Applications of a PC-Microsimulation Model for Research and Teaching," MPRA Paper 16029, University Library of Munich, Germany.
  6. Stich, Andreas, 1996. "Poverty and life cycle effects: A nonparametric analysis for Germany," Discussion Papers in Statistics and Econometrics 5/96, University of Cologne, Department for Economic and Social Statistics.
  7. Johannes Schwarze, 2000. "Using Panel Data on Income Satisfaction to Estimate the Equivalence Scale Elasticity," Discussion Papers of DIW Berlin 227, DIW Berlin, German Institute for Economic Research.
  8. Leonardo Becchetti & Elena Giachin Ricca & Alessandra Pelloni, 2013. "The Paradox of Children and Life Satisfaction," Social Indicators Research, Springer, vol. 111(3), pages 725-751, May.

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