Equivalence scales and consumption inequality: a study of household consumption patterns in Italy

Abstract

This paper utilises unit record survey data on expenditures and incomes of Italian households of different demographic profiles to estimate consumption equivalence scales which measure the relative levels of spending required by households of different composition to attain given levels of utility. The equivalence scales have been obtained from the parameters of few alternative version of a rank 3 complete demand system with demand shifters.Among the demographic variables included in the models, the type of housing tenure and the age of children have special relevance. We have also computed the expenditure elasticities for the most common types of households and analysed how deflating expenditure with the equivalence scales affects consumption inequality among households. The analysis is developed within the framework of hypothesised utility maximising behaviour of households.