The Relationship between the Equivalence Scale and the Inequality Index and Its Impact on the Measurement of Income Inequality

Abstract

The paper discusses the ∪-shaped relationship between the equivalence scale n^ε and the Gini index instead of considering the equivalence scale’s relationship to the generalised entropy measures, which was studied by Coulter, et al. (1992). An end-point condition is given for the ∪-shaped relationship, which corresponds to a condition for that of the generalised entropy measures. Additionally, using a mixture of log-normal distributions approach, five factors are shown to be required for a convex relationship between size elasticity and the Gini index. Empirically, income distributions satisfy those factors. Thus, the end-point condition essentially determines the shape of the relationship