Equivalisation (once again)

Equivalisation is a crucial component of calculating statistics on income inequality and poverty, with these statistics sensitive to how incomes are equivalised. Ireland is among a number of countries to equivalise incomes using a country-specific equivalence scale, based (loosely) on the relativities of social welfare payments in the mid-1980s. We use three methods and data from three-decades of the Irish Household Budget Survey to investigate whether there is an empirical basis to support the use of the existing national scale over alternatives. We find that while estimates from the Engel method yield equivalence scales for additional adults that are not dissimilar to those used for the national equivalence scale, those from the Almost Ideal Demand System are much higher. Conversely, estimates from all three methods yield equivalence scales for children that are much smaller than those used for either the national or modified OECD equivalence scales. While the downward trend in income inequality (as measured by the Gini coefficient) does not appear to be sensitive to the choice of scale, rates of income poverty, particularly child poverty, are.