Appraisal O F Different Methods of Estimating Equivalence Scales and Their Results

Equivalence scales are intended to measure the relative incomes which are needed to enable families of different size, or in different circumstances, to enjoy the same standard of living. They are useful in various contexts: for assessing and comparing changes in real income, the distribution of income, the impact of taxes and of social security benefits, and so on. The estimation of equivalence scales involves many difficulties, both conceptual and practical, and various methods have been tried. Although, in theory, equivalence scales can be derived by laying down objective standards of what different households "need" and then determining the cost of achieving these standards (e.g., Rowntree [I], Booth [2]), they have usually been derived by empirical analysis of expenditure patterns, using data from surveys of household budgets (e.g., U.K. Family Expenditure Surveys [3,4]). Despite the well-known problems concerning the accuracy of the survey data, they do reflect the actual behaviour of consumers and avoid the use of arbitrary standards. Studies of consumer behaviour do not, of course, take account of the non-material "satisfactions" which a married couple, for instance, may derive from having children (cf. Edward F. Denison [5]).