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

Author

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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.

Suggested Citation

  • Merz, Joachim & Garner, Thesia & Smeeding, Timothy M. & Faik, Jürgen & Johnson, David, 1994. "Two Scales, One Methodology - Expenditure Based Equivalence Scales for the United States and Germany," MPRA Paper 7233, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:7233
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    Cited by:

    1. 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.
    2. 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.
    3. Stich, Andreas, 1996. "Poverty and life cycle effects: A nonparametric analysis for Germany," Discussion Papers in Econometrics and Statistics 5/96, University of Cologne, Institute of Econometrics and Statistics.
    4. Burkhauser, Richard V & Smeeding, Timothy M & Merz, Joachim, 1996. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(4), pages 381-400, December.
    5. Leonardo Becchetti & Elena Giachin Ricca & Alessandra Pelloni, 2009. "Children, happiness and taxation," Econometica Working Papers wp12, Econometica.
    6. Stich, Andreas, 1997. "Poverty and life cycle effects: A nonparametric analysis for Germany," Discussion Papers in Econometrics and Statistics 5/96 [rev.], University of Cologne, Institute of Econometrics and Statistics.
    7. Widmaier, Ulrich & Niggemann, Hiltrud & Merz, Joachim, 1994. "What makes the Difference between Unsuccessful and Successful Firms in the German Mechanical Engineering Industry?," MPRA Paper 7230, University Library of Munich, Germany.
    8. Leonardo Becchetti & Elena Giachin Ricca & Alessandra Pelloni, 2013. "The Paradox of Children and Life Satisfaction," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 111(3), pages 725-751, May.

    More about this item

    Keywords

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

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D30 - Microeconomics - - Distribution - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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