Non-Linearities and Equivalence Scales

This paper focuses on the estimation and testing of equivalence scales in the context of a demand system with nonline ar logarithmic expenditure effects in its budget-share equations. The authors show that such nonlinearity enables one to identify the scal es without demographic separability restrictions on preferences and to avoid false rejection of the hypothesis that the scales are independ ent of the base utility level. The empirical analysis is based on micro data drawn from the U.K. Family Expenditure Survey.