June 2020

IZA DP No. 13326: Inequality Measurement and Tax/Transfer Policy

Patricia Apps, Ray Rees

We provide a critique of the standard methodology which bases welfare comparisons between households on deflating household income and consumption by an equivalence scale. We argue that this leads to support for tax/transfer policies that significantly disadvantage low to middle income households and women as second earners. We base the critique both on a theoretical model of the family household and a detailed analysis of Australian income and employment data.