Estimating extended income equivalence scales from income satisfaction and time use data

Abstract

In this paper, I estimate extended income equivalence scales from income satisfaction and time-use data contained in the German Socio-Economic Panel. Designed to capture the needs of additional household members, these scales account for both, increases in households’ money income and domestic production requirements. The estimation procedure determines equivalence weights in these two components separately by combing the subjective with the objective approach. The findings suggest greater monetary equivalence weights for adults than for children, whereas household production increases more strongly in the number of children than in the presence of an adult partner. Differences in relative needs tend to balance out in the extended income equivalence scale, assigning additional adults and children almost identical weights of about 45%. I illustrate the implications of these estimates for measures of income inequality using the same dataset.