Semiparametric estimates and tests of base-independent equivalence scales

Abstract

Previous papers estimate base-independent equivalence scales and test base-independence using strict parametric assumptions on Engel curves and equivalence scale functions. These parametric tests reject the hypothesis of base independence. I construct a semiparametric estimator of a household equivalence scale under the assumption of base independence without putting any further restrictions on the shape of household Engel curves. This estimator uses cross-equation restrictions on a system of estimated nonparametric engel curves to identify equivalence scale parameters. I test the hypothesis of base independence against a fully nonparametric alternative and find that preferences are consistent with the existence of a base-independent equivalence scale for some interhousehold comparisons.