The Welfare Interpretation of Family Size Equivalence Scales

Abstract

Do family size equivalence scales have a welfare interpretation? Whilst many economists routinely use equivalence scales as a component of between-household welfare comparisons, others insist that choice over demographic composition means that such an interpretation is inappropriate. This paper discusses the conditions under which equivalence scales may be appropriately used for welfare comparisons, and concludes that they will often, but not always, be satisfied. In particular, the analysis suggests that distributional analysis should assume that equivalent income is different for the adults and children in each family.