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Weighting with individuals, equivalent individuals, or not weighting at all. Does it matter empirically?

  • André Decoster

    ()

  • Erwin Ooghe

    ()

To take into account heterogeneity in a social welfare function, Ebert (1997) and Shorrocks (1995) show that the only consistent way of welfare measurement consists of either constructing an artificial distribution in which each household is weighted by the number of equivalent individuals, or weighting by the number of individuals in the household. Both approaches are not only mutually exclusive on axiomatic grounds, they are also in sharp contrast with many empirical applications where there is no weighting at all. Since ultimately, the choice is a normative one between axioms, and hence not easily envisaged, an empirical test of the sensitivity of welfare evaluations for the choice of the different weighting schemes might prove useful. In this paper we apply the different methods to administrative microdata of the 2000 PIT reform in Belgium, obtained from the microsimulation model SIRe of the Belgian Ministery of Finance. We find indeed sensitivity of our results with respect to the different weighting methods. In addition, using the number of equivalent individuals as weights to perform dominance analysis leads to fanciful results with respect to the choice of equivalence scales.

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File URL: http://www.econ.kuleuven.ac.be/ew/academic/econover/Papers/DPS0215.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics in its series Public Economics Working Paper Series with number ces0215.

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Length: 16 pp.
Date of creation: 2002
Date of revision:
Handle: RePEc:wpe:papers:ces0215
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  1. Banks, James & Johnson, Paul, 1994. "Equivalence Scale Relativities Revisited," Economic Journal, Royal Economic Society, vol. 104(425), pages 883-90, July.
  2. Burkhauser, Richard V. & Smeeding, Timothy M. & Merz, Joachim, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," MPRA Paper 7229, University Library of Munich, Germany.
  3. Howes, Stephen, 1996. "The Influence of Aggregation on the Ordering of Distributions," Economica, London School of Economics and Political Science, vol. 63(250), pages 253-72, May.
  4. DONALDSON, David & WEYMARK, John A., . "Ethically flexible Gini indices for income distributions in the continuum," CORE Discussion Papers RP -520, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.
  6. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 233-44, May.
  7. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
  8. Ebert, Udo, 1995. "Income inequality and differences in household size," Mathematical Social Sciences, Elsevier, vol. 30(1), pages 37-55, August.
  9. Udo Ebert, 1999. "Using equivalent income of equivalent adults to rank income distributions," Social Choice and Welfare, Springer, vol. 16(2), pages 233-258.
  10. John Bishop & K. Chow & John Formby & Chih-Chin Ho, 1997. "Did Tax Reform Reduce Actual US Progressivity? Evidence from the Taxpayer Compliance Measurement Program," International Tax and Public Finance, Springer, vol. 4(2), pages 177-197, May.
  11. Glewwe, Paul, 1991. "Household equivalence scales and the measurement of inequality : Transfers from the poor to the rich could decrease inequality," Journal of Public Economics, Elsevier, vol. 44(2), pages 211-216, March.
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