Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition

Abstract

Total household income inequality can be very different from inequality measured at the income per-capita level but only in recent years has the pattern of this divergence been investigated. In this paper, results from Coulter et al. (1992) using a one-parameter equivalence scale are updated using data for Ireland, Italy, the UK and the US. A class of two-parameter equivalence scales, representing relative weights of adults and children, is then analysed. Results are shown to depend on the correlation between household size, household composition and household income. Inequality generally increases with children's weight and decreases with adults' weight. OECD and other two-parameter equivalence scales empirically used show a similarity of results to one-parameter equivalence scales with elasticity around 0.5. 3 1. Introduction Comparative studies of income distribution are heavily affected by the "technical" parameters chosen by researchers in measuring inequality. One of the major...