Semiparametric Estimation of Lifetime Equivalence Scales

Pashardes (1991) and Banks, Blundell and Preston (1994) use parametric methods to estimate lifetime equivalence scales. Their approaches put parametric restrictions on the differences in within-period expenditure needs across household types, the intertemporal allocation of expenditure, and the shapes of commodity demand equations. This paper puts parametric structure only on the differences in within-period expenditure needs across household types. This implies structure on the intertemporal allocation of expenditure, but leaves the shapes of commodity demand equations unrestricted. Semiparametric methods are used to estimate within-period and lifetime equivalence scales with Canadian expenditure data, and to test the restrictions imposed on within-period expenditure functions. Estimated lifetime equivalence scales are similar in size to those estimated by Banks, Blundell and Preston, and exhibit equal lifetime costs for first and second children. JEL classification: C14; C43; D11; D12; D63