Estimation of Equivalence Scale Index for Iranian Households

In welfare economic studies، because of the differences among households scale، we cannot consider household expenditures without attention to this factor. A simple method to consider household scale in welfare analysis is the usage of the per capita expenditure. But، the usage of per capita expenditure ignores economies of scale. In fact، per capita expenditure is a biased variable، and undervalues the welfare of populous households. The Equivalence Scale is an appropriate solution for this problem and presents an index for welfare comparison among households with different scales. This paper tries to estimate the equivalence scale for Iranian urban households. It calculates Equivalence scale index for Iranian households with 2 up to 6 members. Income-expenditure data for 15010 urban households in 1386 is used. The results show that Equivalence Scale index in various income levels is different. In addition، it increases with the increase of relative income.