Semi‐parametric estimation of consumption‐based equivalence scales: the case of Germany

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0453.pdf Non-technical SummaryRecent reforms of the social security system in Germany will almost certainly lead to the merger of social benefits (Sozialhilfe) and unemployment assistance (Arbeitslosenhilfe) by the year 2005. When this reform takes effect, up to 1.7 million individuals and their families will obtain new needs-oriented social benefits (Arbeitslosengeld II) in addition to the over 2.3 million employable individuals currently receiving similar social benefits. In contrast to the current benefit system, the system of new social benefits is intended to provide stronger incentives to the unemployed to search for and accept new jobs (Hartz, 2002). However, gross need for social benefits will continue to be calculated on the basis of equivalence scales which determine the equivalent income between different demographic groups of households such that both types of households can achieve the same standard of living. The design of the equivalence scale scheme will therefore essentially drive the incentives for job seekers. This means that, finding appropriate values for the equivalence scales will assume even greater importance in the future. It is difficult to infer policy recommendations from the results because of the large standard errors of the estimates and because of some degree of theoretical arbitrariness involved in the underlying modelling approach. However, the estimations provide some indications that on average the costs for additional persons in a household are at least covered by the standard rates of German social benefits. In the light of recent decisions of the Federal Constitutional Court (Bundesverfassungsgericht) concerning the costs of children and growing discussion of demographic transitions in Germany, it is not apparent from the estimation results that equivalence scales need to be increased for households with children. Semiparametric Estimation of Consumption BasedEquivalence Scales -The Case of Germany

Assessing differences in household needs: a comparison of approaches for the estimation of equivalence scales using German expenditure data

“…While modifying the loss function according to Stengos et al (2006) leads to more plausible results, it is still the case that not all criteria are satisfied; e.g., the scale values are not strictly increasing with household size. Compared with the estimates reported by Stengos et al (2006) for Canada, our estimates are relatively low and are closer to the results of Wilke (2006) using the EVS of 1998. Equivalence scales reported by Wilke (2006) do not violate the household size effect (See Table 7).…”

“…Compared with the estimates reported by Stengos et al (2006) for Canada, our estimates are relatively low and are closer to the results of Wilke (2006) using the EVS of 1998. Equivalence scales reported by Wilke (2006) do not violate the household size effect (See Table 7). A possible explanation for this finding, is that in contrast to Pendakur (1999), Stengos et al (2006), and our application; he used a model based on multiple expenditure categories.…”

“…The assumption underlying this criterion is that every additional household member generates costs; i.e., E(u, p, n+1) > E(u, p, n). As this criterion is generally accepted in the literature, many studies have used it to evaluate the plausibility of equivalence scales (e.g., Deaton and Muellbauer 1986;Wilke 2006;Stengos et al 2006).…”

The additional cost of disability: a new measure and its application to sensory impairment

“…The most common method used by economists to compare household living standards in this process is to observe their expenditure patterns, knowing that poorer households tend to spend higher proportions of their income on food and other essentials (McClements, 1977;Banks and Johnson 1993;Wilke, 2006). To give a simplified example, if three-child families with income A are found on average to spend the same proportion on essentials as two-child families on a lower income, B, this is held to imply that the former families reach the same living standard despite their higher incomes, because of the extra child, so the cost of the third child is inferred to be A minus B.…”

Semiparametric base-independent equivalence scales and the cost of children in Switzerland

“…As pointed out by one of the referees, this assumption is rather strong for the commodity groups food in restaurants and entertainment when focusing on the comparison between childless couples and couples with children. However, the chosen approach is common in the literature (see, e.g., Pendakur, 1999;Wilke, 2006).…”