Measuring the costs of children: parametric and semiparametric estimators1

In: Statistica Neerlandica: journal of the Netherlands Society for Statistics and Operations Research, Band 50, Heft 1, S. 171-192

Abstract

How much additional income does a family with four children need to attain the same welfare level as a family with two children? And how much does a single person need compared to a childless couple? These questions are important in applied micro‐economics and underlie public policy on, for example, social benefits and child allowances. In microeconomics, this is known as the problem of measuring equivalence scales. We estimate these scales using two types of subjective survey information. First, we use answers to survey questions on the income required to attain a given utility level. We compare the results for the usual linear model with semiparametric estimates, in which the functional form of the relationship between required income and family size and actual income is left unspecified. Second, we use answers to the question: how satisfied are you with actual household income? We present parametric and semiparametric estimates for ordered response models explaining this discrete variable. We find that according to the second type of information, costs of children are much larger than according to the first.