Equivalence Scales Based on Revealed Preference Consumption Expenditure Microdata - The Case of West Germany

Equivalence scales are a prerequisite for any economic well-being comparison with measures on income distribution, inequality and poverty. This paper provides equivalence scales based on revealed preference consumption microdata for West Germany 1983. It is a part of a joint US and German research project comparing equivalence scales with consistent methods and similar microdata bases, recent income and consumption surveys of both countries. We concentrate on a single equation expenditure method with different Engel approaches as well as on a complete demand system approach. The complete demand system approach provides true, constant utility based equivalence scales and is specified by an extended linear expenditure system (ELES). While the Engel methods traditionally focus on food expenditures, the multiple equation expenditure system takes into account a full market basket with all its interdependencies and relative prices. Our equivalence scale study for West Germany based on actual available individual consumption expenditure data shows a variety of interesting results with regard to different goods and services baskets as well as to different household composition effects including the situation of the elderly, of the families with married couples and single mothers, and the cost of children. Our consumption results finally are compared to further consumption, expert, and subjective based equivalence scales.