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Equivalence scales in tax and transfer policies

Income distribution and poverty measurement require weighting the impact of both economies of scale and the different needs of each household member. Different models of equivalence scales have been defined. Equivalence scales are also present in many tax and benefit programs. This paper reviews the equivalence scales implicit in personal income tax in Spain. We identify the adjustments contained in the new income tax and highlight the differences with those used in other social programs and the scales normally used to study poverty. An empirical analysis of poverty rates for different kinds of households is carried out using both these implicit scales as well as conventional equivalence scales. The results illustrate that economies of scale are taken into account to a lesser extent in income tax legislation than in income distribution analysis. (Copyright: Fundación SEPI)

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Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 27 (2003)
Issue (Month): 3 (September)
Pages: 593-614

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Handle: RePEc:iec:inveco:v:27:y:2003:i:3:p:593-614
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  1. 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.
  2. Deaton, Angus S & Ruiz-Castillo, Javier & Thomas, Duncan, 1989. "The Influence of Household Composition on Household Expenditure Patterns: Theory and Spanish Evidence," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 179-200, February.
  3. Udo Ebert & Peter J. Lambert, 2004. "Horizontal Equity and Progression When Equivalence Scales Are Not Constant," Public Finance Review, , vol. 32(4), pages 426-440, July.
  4. Bruce Bradbury, 1988. "Family Size Equivalence Scales and Survey Evaluation of Income and Well-Being," Discussion Papers 005, University of New South Wales, Social Policy Research Centre.
  5. Duclos, Jean-Yves & Mercarder-Prats, Magda, 1996. "Household Needs and Poverty: with Application to Spain and the UK," Cahiers de recherche 9614, Université Laval - Département d'économique.
  6. Banks, James & Johnson, Paul, 1994. "Equivalence Scale Relativities Revisited," Economic Journal, Royal Economic Society, vol. 104(425), pages 883-90, July.
  7. Lewbel, Arthur, 1989. "Household equivalence scales and welfare comparisons," Journal of Public Economics, Elsevier, vol. 39(3), pages 377-391, August.
  8. van der Gaag, Jacques & Smolensky, Eugene, 1982. "True Household Equivalence Scales and Characteristics of the Poor in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 28(1), pages 17-28, March.
  9. Pollak, Robert A & Wales, Terence J, 1979. "Welfare Comparisons and Equivalence Scales," American Economic Review, American Economic Association, vol. 69(2), pages 216-21, May.
  10. Jenkins, Stephen P & Lambert, Peter J, 1993. "Ranking Income Distributions When Needs Differ," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(4), pages 337-56, December.
  11. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
  12. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-42, June.
  13. Atkinson, Anthony B & Bourguignon, Francois, 1982. "The Comparison of Multi-Dimensioned Distributions of Economic Status," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 183-201, April.
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