Basic needs (in)security and subjective equivalence scales

Abstract

Equivalence scales are policy parameters for inequality measurement, tax deductions and subsidies. Thus, their accuracy is relevant both for budgets and social cohesion; however, their measurement is subject to debate regarding the underlying measure of welfare. Selfassessed insecurities in terms of clothing, housing and food—or basic needs—imply that at least some households are at lower levels of welfare than those that are meeting their needs. We use this to determine the increase in total expenditure required to meet their needs, on average, and thus we are able to calculate the implied equivalence scales. We compare these subjective scales to ones that arise from objective measures, such as expenditure shares on the same items. Our subjective scales are more consistent and plausible across all goods, and are similar to those arising from food expenditure shares. While scales arising from either housing or clothing expenditure shares are neither similar to those arising from food shares or basic needs adequacy nor are they plausible, given the plausibility rules we apply. Furthermore, the subjective equivalence scales are smaller than those proposed in the OECD-modified scale.