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Equivalent-Income Functions and Income-Dependent Equivalence Scales

Author

Listed:
  • Donaldson, D.
  • Pendakur, K.

Abstract

This paper presents and investigates two classes of equivalent-income functions that are generalizations of those that correspond to exact (independent-of-base) absolute and relative equivalence scales. They provide less restrictive household demands, especially for children's goods, and have associated absolute and relative equivalence scales that may depend on income. We show that, under certain conditions, equivalent-income functions and the associated income-dependent equivalence scales can be uniquely estimated from demand data. We estimate them using Canadian data and find that the resulting scales are both plausible and income dependent. In addition, the estimated scales are used to measure inequality and we find that they make a significant difference to the level and trend in measured inequality.

Suggested Citation

  • Donaldson, D. & Pendakur, K., 1999. "Equivalent-Income Functions and Income-Dependent Equivalence Scales," Discussion Papers dp99-8, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp99-8
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    Citations

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    Cited by:

    1. Carsten SCHRÖDER & Christos KOULOVATIANOS & Ulrich SCHMIDT, "undated". "Family-type Subistence Incomes," EcoMod2008 23800128, EcoMod.
    2. Koulovatianos, Christos & Schroder, Carsten & Schmidt, Ulrich, 2005. "On the income dependence of equivalence scales," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 967-996, June.
    3. Pendakur, Krishna, 2002. "Taking prices seriously in the measurement of inequality," Journal of Public Economics, Elsevier, vol. 86(1), pages 47-69, October.
    4. Koulovatianos, Christos & Schröder, Carsten & Schmidt, Ulrich, 2008. "Confronting the Robinson Crusoe paradigm with household-size heterogeneity," CFS Working Paper Series 2008/24, Center for Financial Studies (CFS).
    5. Guillaume Allegre, 2014. "How can a basic income be defended?," Sciences Po publications info:hdl:2441/25qafebie49, Sciences Po.
    6. Timm Bönke & Sebastian Eichfelder, 2010. "Horizontal Equity in the German Tax-Benefit System: A Simulation Approach for Employees," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 295-331, September.
    7. Tomasz Panek & Jan Zwierzchowski, 2013. "Porównawcza analiza sfery ubóstwa w krajach UE w ujêciu regionalnym," Working Papers 59, Institute of Statistics and Demography, Warsaw School of Economics.
    8. Jay S. Coggins & Federico Perali, 2000. "Voting For Equity: Estimating Society'S Preferences Toward Inequality," CHILD Working Papers wp04_00, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
    9. Christos Koulovatianos & Carsten Schröder & Ulrich Schmidt, 2010. "Confronting the Representative Consumer with Household-Size Heterogeneity," Discussion Papers of DIW Berlin 1056, DIW Berlin, German Institute for Economic Research.
    10. Krishna Pendakur, 2001. "Consumption Poverty in Canada, 1969 to 1998," Canadian Public Policy, University of Toronto Press, vol. 27(2), pages 125-149, June.
    11. Ooghe, Erwin, 2003. "Reference type-independent heterogeneous social evaluation," Economics Letters, Elsevier, vol. 80(2), pages 227-231, August.
    12. 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.
    13. Laura Blow, 2003. "Demographics in demand systems," IFS Working Papers W03/18, Institute for Fiscal Studies.
    14. Achille VERNIZZI & Maria Giovanna MONTI & Marek KOSNY, 2006. "An overall inequality reducing and horizontally equitable tax system with application to Polish data," Departmental Working Papers 2006-15, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    15. Ebert, Udo, 2001. "A general approach to the evaluation of nonmarket goods," Resource and Energy Economics, Elsevier, vol. 23(4), pages 373-388, October.
    16. John Muellbauer & Justin van de Ven, 2004. "Estimating Equivalence Scales for Tax and Benefits Systems," Economics Papers 2004-W06, Economics Group, Nuffield College, University of Oxford.
    17. Christos Koulovatianos & Carsten Schröder & Ulrich Schmidt, 2005. "Properties of Equivalence Scales in Different Countries," Journal of Economics, Springer, vol. 86(1), pages 19-27, October.
    18. Luis José Imedio Olmedo & Encarnación Macarena Parrado Gallardo & María Dolores Sarrión Gavilán, 2005. "Horizontal equity, equal progression: an utilitarian approach," Hacienda Pública Española, IEF, vol. 174(3), pages 87-115, September.
    19. F. Pedrali, 2002. "Can PIGLOG Preferences Identify Equivalence Scales ?," THEMA Working Papers 2002-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    20. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 175-208, January.

    More about this item

    Keywords

    CONSUMPTION ; INCOME;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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