Equivalence Scales Declining with Expenditure: Evidence and Implications for Income Distribution
AbstractWe estimate expenditure dependent equivalence scales for Italian couples with and without children. Following Donaldson and Pendakur (2006) we incorporate the generalized absolute equivalence-scale exactness (GAESE) restrictions into a translated quadratic almost ideal (TQAI) demand system. We obtain declining with expenditure scales, a pattern that tends to strengthen when the number of children increases. This implies that scale economies in current consumption are lower for families with poor expenditure capacities. We also show that families living in the South and the Islands suffer a substantial additional cost to achieve, ceteris paribus, the same well-being of those living in the North. Finally, we find that ignoring the declining with expenditure pattern results in a relevant understatement of measured inequality.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 611.
Date of creation: May 2011
Date of revision:
Equivalent Expenditure Functions; Equivalence Scales;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-02 (All new papers)
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