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

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  • André Decoster
  • Erwin Ooghe

Abstract

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.

Suggested Citation

  • André Decoster & Erwin Ooghe, 2002. "Weighting with individuals, equivalent individuals, or not weighting at all. Does it matter empirically?," Public Economics Working Paper Series ces0215, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
    • Handle: RePEc:wpe:papers:ces0215
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    References listed on IDEAS

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    1. Banks, James & Johnson, Paul, 1994. "Equivalence Scale Relativities Revisited," Economic Journal, Royal Economic Society, vol. 104(425), pages 883-890, July.
    2. Cowell, Frank & Mercader-Prats, Magda, 1999. "Equivalence scales and inequality," LSE Research Online Documents on Economics 2190, London School of Economics and Political Science, LSE Library.
    3. Richard V. Burkhauser & Timothy M. Smeeding & Joachim Merz, 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.
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    6. 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.
    7. Ebert U., 1996. "Income inequality and differences in household size," Mathematical Social Sciences, Elsevier, vol. 31(1), pages 57-58, February.
    8. 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;International Institute of Public Finance, vol. 4(2), pages 177-197, May.
    9. Howes, Stephen, 1996. "The Influence of Aggregation on the Ordering of Distributions," Economica, London School of Economics and Political Science, vol. 63(250), pages 253-272, May.
    10. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
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    12. Udo Ebert, 1999. "Using equivalent income of equivalent adults to rank income distributions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 16(2), pages 233-258.
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    Cited by:

    1. John Creedy & Catherine Sleeman, 2004. "Adult Equivalence Scales, Inequality and Poverty in New Zealand," Treasury Working Paper Series 04/21, New Zealand Treasury.
    2. John Creedy & Ross Guest, 2007. "Discounting and the Time Preference Rate: An Introduction," Department of Economics - Working Papers Series 993, The University of Melbourne.
    3. Creedy, John & Guest, Ross, 2008. "Population ageing and intertemporal consumption: Representative agent versus social planner," Economic Modelling, Elsevier, vol. 25(3), pages 485-498, May.
    4. John Creedy & Rosanna Scutella, 2003. "The Role of the Unit of Analysis in Tax Policy Reform Evaluations," Melbourne Institute Working Paper Series wp2003n28, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    5. Christopher Ball & John Creedy, 2015. "Inequality in New Zealand 1983/84 to 2013/14," Treasury Working Paper Series 15/06, New Zealand Treasury.
    6. John Creedy & Cath Sleeman, 2005. "Adult equivalence scales, inequality and poverty," New Zealand Economic Papers, Taylor & Francis Journals, vol. 39(1), pages 51-81.
    7. John Creedy & Jesse Eedrah, 2014. "The Role of Value Judgements in Measuring Inequality," Treasury Working Paper Series 14/13, New Zealand Treasury.
    8. Peter Lambert & Thor Thoresen, 2009. "Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(2), pages 219-252, April.
    9. Creedy, John, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Working Paper Series 18784, Victoria University of Wellington, Chair in Public Finance.
    10. John Creedy & Jesse Eedrah, 2016. "Income redistribution and changes in inequality in New Zealand from 2007 to 2011: Alternative distributions and value judgements," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(2), pages 129-152, August.
    11. John Creedy, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Treasury Working Paper Series 13/11, New Zealand Treasury.
    12. Christopher Ball & John Creedy, 2015. "Inequality in New Zealand 1983/84 to 2013/14," Treasury Working Paper Series 15/06, New Zealand Treasury.
    13. John Creedy & Rosanna Scutella, 2004. "The Role of the Unit of Analysis in Tax Policy Return Evaluations of Inequality and Social Welfare," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(1), pages 89-108, March.
    14. John Creedy & Ross Guest, 2008. "Discounting and the Time Preference Rate," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 109-127, March.

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