[Methods of equivalence scales: an application for Iran]

ABSTRACT

Households differ in size, age composition, educational level and other characteristics. Generally, we do expect households with different characteristics to have different expenditure patterns. In order to calculate the impact of household, characteristics on their minimum requirements and household's demand, equivalent scale is introduced. Household equivalence scales provide an economic way of incorporating the impact of demographic change into models for the allocation of aggregate consumer expenditure. they are also useful in welfare economics for comparing levels of welfare among households with different demographic characteristics. In this paper, different common approaches to equivalent scales are introduced. Jorgenson-Slesnick model is one of the most famous and useful methods to measure different aspects of households' characteristics. In this paper, we have applied this method to calculate household equivalent scale for different demographic characteristics in compare with the reference household that is an urban household consists of an adult couple. We used this scale to compare welfare of households with different characteristics. In this regard, data collected through Household Surveys for the period of 1984-2003 and the cross-section data of 2002 have been used. The results of this research can be used to compare wellbeing level as well as the minimum household expenditure requirements for different household types. The results are prerequisite for poverty and inequality measurement as well as for distributing government subsidies over the basic commodities according to the differences of the households' characteristics, including family size, urban and rural residential areas, educational level of the head of household, and the type of commodities that the households consume