Estimation of equivalence scales in Italy based on income distribution
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This paper illustrates a method for estimating equivalence scales, that is, the income required by
one household to reach the same standard of living as another one. The original method considered
in the present study was introduced by Kot in 2002, whereas here we formulate a different procedure
based on the quantiles of the Dagum distribution. We estimate the scale parameter through
the maximum likelihood method based on the results of the survey carried out by the Banca d’Italia
on the household income and wealth in 2002. The reason for the chosen method is based on the
fact that the Dagum distribution fits the Italian income distribution well. Finally, two ways for finding
the confidence interval for the elasticity of the equivalence scale are considered.
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