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Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data

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  • Melanie Borah
  • Andreas Knabe
  • Carina Kuhställer

Abstract

We estimate household equivalence scales using income satisfaction data from the German Socio-Economic Panel. We extend previous studies applying this approach by taking reference income into account. This allows separating needs-based from reference effects in the determination of income satisfaction. We show that this adjustment helps to overcome a bias causing an overestimation of adults’ and an underestimation of children’s needs-based equivalence weights. Our results indicate that controlling for income comparisons eliminates the gap between equivalence scale parameters for adults and children found in other studies.

Suggested Citation

  • Melanie Borah & Andreas Knabe & Carina Kuhställer, 2016. "Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data," CESifo Working Paper Series 6123, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6123
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    References listed on IDEAS

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    23. Claudia Senik, 2008. "Ambition and Jealousy: Income Interactions in the ‘Old’ Europe versus the ‘New’ Europe and the United States," Economica, London School of Economics and Political Science, vol. 75(299), pages 495-513, August.
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    Cited by:

    1. Kaiser, Caspar, 2018. "People do not adapt to income changes: A re-evaluation of the dynamic effects of (reference) income on life satisfaction with GSOEP and UKHLS data," MPRA Paper 89867, University Library of Munich, Germany.

    More about this item

    Keywords

    equivalence scale; income satisfaction; relative income;

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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