Semiparametric base-independent equivalence scales and the cost of children in Switzerland

How much additional income does a couple with two children need to be equally well-off as a childless couple? This question is important for public policy decisions on social benefits or child allowances. Since equivalence scales express the change in the cost required to attain a certain welfare level when the household size and composition varies, they answer this question. This paper provides semi-parametric estimates of consumption-based equivalence scales by applying the extended partially linear model to the Swiss Household Budget Survey 2000–2005. The results permit welfare comparisons across households and provide an indirect measure of the cost of children.