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This analytical tool illustrates how inequality and poverty analysis may be carried out when the income distribution is defined over households (i.e. household incomes) and not over individuals (i.e. individual incomes). When household incomes are considered, a problem arises with regard to the possibility of comparing monetary incomes of different households with different numbers of inhabitants. In this case, and as described in this module, a correction should be made to meaningfully compare different situations. This correction is called an equivalence scale. An equivalence scale may be a simple per capita measure or a more sophisticated way to take into account the fact that, within any given household, economies of scale may operate with regard to the consumption of certain goods. Applying an equivalence scale to monetary incomes of different households gives rise to an equivalised income that can be used for inequality, poverty or welfare analysis.

For more information, see also:

• Equivalence Scales. Subjective Methods. EASYPol Series 033
• Equivalence Scales. Objective Methods. EASYPol Series 034

This paper is part of a FAO Policy series: EASYPol-Resources for policy making (in agriculture, rural development and food security). To find other EASYPol series' resources, go to the Policy Support and Governance website>Resources and type "EASYPol" in the free text search.