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Equivalence Scales Declining with Expenditure: Evidence and Implications for Income Distribution

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  • Fabrizio Balli
  • Silvia Tiezzi

Abstract

We estimate expenditure dependent equivalence scales for Italian couples with and without children. Following Donaldson and Pendakur (2006) we incorporate the generalized absolute equivalence-scale exactness (GAESE) restrictions into a translated quadratic almost ideal (TQAI) demand system. We obtain declining with expenditure scales, a pattern that tends to strengthen when the number of children increases. This implies that scale economies in current consumption are lower for families with poor expenditure capacities. We also show that families living in the South and the Islands suffer a substantial additional cost to achieve, ceteris paribus, the same well-being of those living in the North. Finally, we find that ignoring the declining with expenditure pattern results in a relevant understatement of measured inequality.

Suggested Citation

  • Fabrizio Balli & Silvia Tiezzi, 2011. "Equivalence Scales Declining with Expenditure: Evidence and Implications for Income Distribution," Department of Economics University of Siena 611, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:611
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    References listed on IDEAS

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    10. 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.
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    Cited by:

    1. Fabrizio Balli, 2012. "Are Traditional Equivalence Scales Still Useful? A Review and A Possible Answer," Department of Economics University of Siena 656, Department of Economics, University of Siena.

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    More about this item

    Keywords

    Equivalent Expenditure Functions; Equivalence Scales;

    JEL classification:

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

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