Abstract
To compare welfare among households, net household income is a widely used indicator. However, this indicator does not take into account differences in household composition and thus in needs. To adjust for these differences equivalence scales are designed by taking into account the main household characteristics which do affect needs. In economic literature a wide range of equivalence scales is being discussed, from one extreme, where no adjustment is made at all, to the other, where per capita income is used as a welfare indicator. There is ample reason to suspect that the choice of an equivalence scale systematically affects results and the comparability of results from different studies in the field of welfare comparisons. This article illustrates the sensitivity of results with respect to the choice of a particular equivalence scale and proposes a set of criteria by which to choose.
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