Abstract
Income inequality and poverty risks receive a lot of attention in public debates and current research. To make income comparable across different types of households, applying the “(modified) OECD scale” – an equivalence scale with fixed weights for each household type – has become a quasi-standard in research. Instead, we derive a base-dependent equivalence scale allowing for scale weights that vary with income, building on micro-data from Germany. Our results suggest that appropriate equivalence scales are much steeper at the lower end of the income distribution than they are for higher income levels. We illustrate our findings by applying them to data on family income differentiated by household types. It turns out that using income-dependent equivalence scales matters for applied research on income inequality, especially if one is concerned with the composition, not just the size of the population at poverty risk.
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Acknowledgements
We would like to thank the Bertelsmann Stiftung for generously supporting our research. We are also grateful to participants of several conferences and workshops for interesting discussions (for instance, at Freie Universität Berlin, the Max Planck Institute for Demographic Research, Rostock, and the German Federal Statistical Office) and to the responsible co-editor as well as two anonymous referees for very helpful comments and suggestions.
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Garbuszus, J.M., Ott, N., Pehle, S. et al. Income-dependent equivalence scales: A fresh look at German micro-data. J Econ Inequal 19, 855–873 (2021). https://doi.org/10.1007/s10888-021-09494-7
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DOI: https://doi.org/10.1007/s10888-021-09494-7