Equivalence scales for the distribution of consumption expenditures in Italy: proposed methods to update the Carbonaro Scale

Comparing the well-being of different households requires knowledge not only of the resources available to them, but also of their needs. This seems to be possible, albeit with some effort and approximation, by defining an equivalence coefficient that indicates, using a reference household, how much a family with different characteristics needs to enjoy the same standard of living. Equivalence scales are typically used to make the expenditure of households of different size and composition comparable. In this paper, using data from the 2017-2019 Italian Household Budget Survey (IHBS), we propose an equivalence scale calculated using a simple method based on recent improvements in absolute poverty methodology. To validate our analysis, we compared the results with the original Carbonaro scale calculated in 1985, a version of the Carbonaro scale updated using the 2017-2019 HBS data, and scales calculated using complete household demand systems. Finally, we present a simple and intuitive method to assess which of these scales performs better in the Italian economic context. Preliminary results suggest that the Carbonaro scale, as originally constructed, is now outdated and needs to be revised. On the contrary, the proposed approach of using absolute poverty thresholds as a proxy for essential expenditure seems to provide encouraging results, especially in the light of the evolution of the Italian socio-economic context and the relationship that must exist between absolute and relative poverty.