Equivalence scales in tax and transfer policies

Income distribution and poverty measurement require weighting the impact of both economies of scale and the different needs of each household member. Different models of equivalence scales have been defined. Equivalence scales are also present in many tax and benefit programs. This paper reviews the equivalence scales implicit in personal income tax in Spain. We identify the adjustments contained in the new income tax and highlight the differences with those used in other social programs and the scales normally used to study poverty. An empirical analysis of poverty rates for different kinds of households is carried out using both these implicit scales as well as conventional equivalence scales. The results illustrate that economies of scale are taken into account to a lesser extent in income tax legislation than in income distribution analysis. (Copyright: Fundación SEPI)Equivalence scales, personal income tax, poverty.