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Weighting with individuals, equivalent individuals, or not weighting at all. Does it matter empirically?

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  • André Decoster

    ()

  • Erwin Ooghe

    ()

Abstract

To take into account heterogeneity in a social welfare function, Ebert (1997) and Shorrocks (1995) show that the only consistent way of welfare measurement consists of either constructing an artificial distribution in which each household is weighted by the number of equivalent individuals, or weighting by the number of individuals in the household. Both approaches are not only mutually exclusive on axiomatic grounds, they are also in sharp contrast with many empirical applications where there is no weighting at all. Since ultimately, the choice is a normative one between axioms, and hence not easily envisaged, an empirical test of the sensitivity of welfare evaluations for the choice of the different weighting schemes might prove useful. In this paper we apply the different methods to administrative microdata of the 2000 PIT reform in Belgium, obtained from the microsimulation model SIRe of the Belgian Ministery of Finance. We find indeed sensitivity of our results with respect to the different weighting methods. In addition, using the number of equivalent individuals as weights to perform dominance analysis leads to fanciful results with respect to the choice of equivalence scales.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics in its series Public Economics Working Paper Series with number ces0215.

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Length: 16 pp.
Date of creation: 2002
Date of revision:
Handle: RePEc:wpe:papers:ces0215

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References

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  1. Donaldson, David & Weymark, John A., 1983. "Ethically flexible gini indices for income distributions in the continuum," Journal of Economic Theory, Elsevier, vol. 29(2), pages 353-358, April.
  2. Richard V. Burkhauser & Timothy M. Smeeding & Joachim Merz, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," FFB-Discussionpaper 12, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  3. Ebert, Udo, 1995. "Income inequality and differences in household size," Mathematical Social Sciences, Elsevier, vol. 30(1), pages 37-55, August.
  4. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
  5. Jenkins, Stephen P & Cowell, Frank A, 1994. "Parametric Equivalence Scales and Scale Relativities," Economic Journal, Royal Economic Society, vol. 104(425), pages 891-900, July.
  6. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 233-44, May.
  7. Howes, Stephen, 1996. "The Influence of Aggregation on the Ordering of Distributions," Economica, London School of Economics and Political Science, vol. 63(250), pages 253-72, May.
  8. John Bishop & K. Chow & John Formby & Chih-Chin Ho, 1997. "Did Tax Reform Reduce Actual US Progressivity? Evidence from the Taxpayer Compliance Measurement Program," International Tax and Public Finance, Springer, vol. 4(2), pages 177-197, May.
  9. Banks, James & Johnson, Paul, 1994. "Equivalence Scale Relativities Revisited," Economic Journal, Royal Economic Society, vol. 104(425), pages 883-90, July.
  10. Udo Ebert, 1999. "Using equivalent income of equivalent adults to rank income distributions," Social Choice and Welfare, Springer, vol. 16(2), pages 233-258.
  11. Glewwe, Paul, 1991. "Household equivalence scales and the measurement of inequality : Transfers from the poor to the rich could decrease inequality," Journal of Public Economics, Elsevier, vol. 44(2), pages 211-216, March.
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Cited by:
  1. John Creedy, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Treasury Working Paper Series 13/11, New Zealand Treasury.
  2. Peter J. Lambert & Thor O. Thoresen, 2005. "Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004," Discussion Papers 434, Research Department of Statistics Norway.
  3. John Creedy & Catherine Sleeman, 2004. "Adult Equivalence Scales, Inequality and Poverty in New Zealand," Treasury Working Paper Series 04/21, New Zealand Treasury.
  4. John Creedy & Ross Guest, 2006. "Population Ageing And Intertemporal Consumption: Representative Agent Versus Social Planner," Department of Economics - Working Papers Series 972, The University of Melbourne.
  5. John Creedy & Cath Sleeman, 2005. "Adult equivalence scales, inequality and poverty," New Zealand Economic Papers, Taylor & Francis Journals, vol. 39(1), pages 51-81.
  6. John Creedy & Rosanna Scutella, 2003. "The Role of the Unit of Analysis in Tax Policy Reform Evaluations," Melbourne Institute Working Paper Series wp2003n28, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  7. Peter Lambert & Thor Thoresen, 2009. "Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004," International Tax and Public Finance, Springer, vol. 16(2), pages 219-252, April.

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