Comparison of alternative tax and transfer treatment of children using adult equivalence scales

Abstract

This paper estimates adult equivalence scales in the context of a nonlinear demand system using cross-section individual household data. It then evaluates the treatment of children under the tax allowance and child benefit systems on the basis of the estimated equivalence scales. The results suggest that a child benefit system allowing for economies of scale in the family is consistent with the cost of children implied by the notion of adult equivalence scale.