Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition

Total household income inequality can be very different from inequality measured at the income per-capita level but only in recent years has the pattern of this divergence been investigated. In this paper, results from Coulter et al. (1992) using a one-parameter equivalence scale are updated using data for Ireland, Italy, the UK and the US. A class of two-parameter equivalence scales, representing relative weights for adults and children, is then analysed. Results are shown to depend on the distribution of household size and composition among deciles of the population. Inequality generally increases with children's weight and decreases with adults' weight. OECD and other two-parameter equivalence scales empirically used show similar results to the one-parameter equivalence scale with elasticity around 0.5.