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THE SENSITIVITY OF INCOME INEQUALITY TO CHOICE OF EQUIVALENCE SCALES
Author(s) -
Aaberge Rolf,
Melby Ingrid
Publication year - 1998
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.1475-4991.1998.tb00299.x
Subject(s) - equivalence (formal languages) , economics , norwegian , econometrics , inequality , economic inequality , household income , robustness (evolution) , scale (ratio) , demographic economics , mathematics , geography , mathematical analysis , philosophy , linguistics , biochemistry , chemistry , cartography , archaeology , discrete mathematics , gene
To account for the fact that a household's needs depend on its size and composition most studies on income inequality adjust the observed household incomes by equivalence scales. However, since the rationale for choosing a specific scale is rather vague the importance of testing the sensitivity of income inequality estimates to choice of equivalence scales has long been acknowledged. The sensitivity studies in the literature are restricted to equivalence scales that do not depend on the income level of the reference household which means that the effect of a rise in the household size on the scale rate does not depend on whether the household is poor or rich. By using Norwegian micro‐data it is shown that the introduction of an income‐dependent scale produces results that are in conflict with the widespread view of robustness of results to choice of equivalence scales.