estimates of equivalence scale for iranian households

Despite its vast natural resources of oil, gas and minerals (mining),dealing with the problem of poverty and inequality is a seriouschallenge for policy makers. this challenge becomes increasinglyacute as the authorities succumb, inevitably, to pressures toliberalise the economy by implementing free market principles andsimilar reforms. the welfare system in the islamic republic of iranis quite complex with various governmental, non-governmental andpara-governmental welfare organizations operating side by side.the subsidy targetization act was the biggest of its kind in thehistory of the islamic republic, and that it is bound to affect thewell-being of a large proportion of the population, it is rathersurprising that it was introduced in such haste and without thoroughplanning. an equivalence scale is a measure of the cost of living ofa household of a given size and demographic composition relativeto the cost of living of a reference household when both householdsattain the same level of utility or standard of living (lewbeland pendakur, 2006). the method of calculating the equivalencescale is based on the engel curve which can be argued to be aspecific, restricted, representation of the marshallian demand curvewhere prices are held constant and demand varies with income. wehave argued, as an example of application of this approach, that thisapproach provides a more efficient and equitable way of compensatingthe consumers for the impact of the removal of price subsidies.