Two Scales, One Methodology-Expenditure Based Equivalence Scales for the United States and Germany

FFB Discussion Paper No. 8

50 Pages Posted: 1 Jul 2009

See all articles by Joachim Merz

Joachim Merz

Research Institute on Professions; Research Institute on Professions; Leuphana University of Lueneburg; Institute for the Study of Labor (IZA)

Jürgen Faik

Independent

Date Written: May 1994

Abstract

Choosing an appropriate equivalence scale is a prerequisite for comparisons of economic wellbeing income distribution, inequality or poverty. This is true for country specific work or for cross-national comparisons. Researchers generally either use a country specific equivalence scale (social assistance, expert based, or poverty scales), or adopt a single scale for all comparison across countries. Here we follow a different approach. We use microdata to estimate equivalence scales based on a revealed preference consumption approach for West Germany and the United States. We review several approaches and rely on a complete demand system approach, which provides constant utility based equivalence scales using an extended linear expenditure system (ELES). The multiple equation expenditure system takes into account a full market basket with all its interdependencies and relative prices. Our consumption-based equivalence results are compared to alternative consumption based measures, expert based measures, and subjective based measures in use in both countries and to other scales used for cross-national comparisons.

Keywords: alternative equivalence scale, Germany, USA, distribution of income, inequality, poverty

JEL Classification: I30, I32, D30, D31

Suggested Citation

Merz, Joachim and Merz, Joachim and Faik, Jürgen, Two Scales, One Methodology-Expenditure Based Equivalence Scales for the United States and Germany (May 1994). FFB Discussion Paper No. 8, Available at SSRN: https://ssrn.com/abstract=1417291

Joachim Merz (Contact Author)

Research Institute on Professions ( email )

Lüneburg
Germany

Research Institute on Professions ( email )

Lüneburg
Germany

Leuphana University of Lueneburg

Scharnhorststrasse 1
Lüneburg, 21314
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Jürgen Faik

Independent ( email )

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