adjusting for household equivalence scales in computing PCE

[Zuhumnan Dapel]

Dear All,
Part of my data set has no information on the number and age of children in each household. One can therefore not be able to use the "OECD equivalence scale" in accounting for economies of scale in household consumption.

To counter this shortcoming, I'n now trying to apply: Square root scale http://www.oecd.org/eco/growth/OECD-...enceScales.pdf
After obtaining the ratio of household income to the square root of household size, is there a Stata code that one could use in applying this scale to measuring poverty?

Thanks,
Dapel

[Stephen Jenkins]

After applying the square-root scale, you have a measure of equivalised income (or consumption). Proceeding to then measure poverty requires choice(s) of the poverty line. That choice is up to you, drawing on the appropriate scientific knowledge of your discipline and the country context.

[Zuhumnan Dapel]

Thanks Prof Jenkins. Given a two-person household with a computed scale of 1.4 and unadjusted household total consumption per year of 121,110.40, is this the household's equivalised PC income (or consumption) =121,110.40/1.4=86,507.43? The unequivalised PC income (or consumption) for the household is 60,555.21.

I'm asking because, applying this method, gives one a big difference in the headcount index of poverty: adjusted (0.05) and undajusted (0.4). Looks a questionable difference to me.

Dapel

[Stephen Jenkins]

You need to use a poverty line denominated in square-root-equivalized income units if you are using square-root-equivalized income. Your headcount ratio estimates are not comparable because you appear to be applying a poverty line for income-per-capita to square-root-equivalized incomes. (PS this is a Stata forum, not a poverty analysis forum.)

[Aashima Singhal]

Dear Prof Stephen,

I am using an equivalence scale of oxford to convert household consumption expenditure to equivalent household consumption expenditure.
On the other hand, I have per person poverty line.
Can I directly compare, the per person poverty line to per capita consumption expenditure (i.e household consumption expenditure/ equivalent size).
Or do I need to convert the poverty line as well? If yes, then I request you to please guide regarding the same.

Regards
Aashima