Semiparametric Estimation of Consumption Based Equivalence Scales – The Case of Germany

Consumption based equivalence scales are estimated by applying the extended partially linear model (EPLM) to the 1998 German Income and Consumption Survey (EVS). In this model the equivalence scales are identified from nonlinearities in household demand. The econometric framework should not therefore impose strong restrictions on the functional forms of household expenditure shares. The chosen semiparametric specification meets this requirement. It is flexible, it yields $\sqrt{N}-$consistent parameter estimates and it is consistent with consumer theory. Estimated equivalence scales are below or in the range of the expert equivalence scales of the German social benefits system.

Wilke, Ralf (2004), Semiparametric Estimation of Consumption Based Equivalence Scales – The Case of Germany, ZEW Discussion Paper No. 04-53, Mannheim.