Equivalence Scale Relativities and the Extent of Inequality and Poverty

Abstract

Most inequality and poverty theory analyzes "equivalent income" distributions for homogeneous populations: incomes are assumed to be deflated by an equivalence scale that accounts for differences in needs between households. Yet in practice there is no consensus about what the appropriate equivalence scale is. The authors analyze how the choice of equivalence scale affects inequality and poverty measures, and show that there is a systematic relationship between equivalence scale generosity and the extent of inequality and poverty. They consider most of the measures in common use and provide some empirical illustrations.