Indigenous and Other Australian Poverty: Revisiting the Importance of Equivalence Scales*

Equivalence scales attempt to control for family size and composition, as well as the relative costs of maintaining various family types. The 1995 National Health Survey is used to examine how variations in the assumptions underlying equivalence scales, such as household composition and economies of size, affect poverty measures for Indigenous and non-Indigenous Australians. The main finding is that the assumptions about the costs of children can increase Indigenous poverty by a factor of two- and-a-half. Another finding is that the choice of equivalence scales can induce large threshold effects that influence the composition of poverty.