Sensitivity to Adult Equivalence Scales
The differences across columns in Table 3 suggest that the adult equivalence scale can be important in drawing a number of inequality conclusions. This subsection therefore considers sensitivity of the Gini and Atkinson indices to the particular scale adopted. Figure 4 shows the two indices for a range of values of α (the scale parameter) and three values of θ (the ‘number of children’ parameter): 0.4, 0.6 and 0.8. The profiles reveal a relatively ‘flat’ range around α = 0.6 - 0.7 where there is little sensitivity to the precise α value selected, but much more sensitivity at low values of α. Sensitivity to θ is greatest at higher a values: raising θ from 0.4 to 0.8, when α = 0.8, increases the Gini of gross income by around 0.01. To put this in perspective, the tax and transfer system as a whole reduces the concentration of gross income by around 0.06 (GY - CZ in Table 3, column 4). With commonly used values of α around 0.6-0.8, it is not perhaps surprising that, for income per adult-equivalent, inequality measures are relatively sensitive to changes in θ in Figure 4.
- Figure 4 – Sensitivity to Adult Equivalence Scales
