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How Should We Measure Sustainable Income?

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Abstract

Growing concerns about long-run economic growth have led to calls for measures of "sustainable income." Traditional analyses rely on Hicksian income, which is consumption plus net investment. The present paper shows that Hicksian income corresponds to sustainable income only under implausibly limited circumstances. We define sustainable income and estimate its magnitude for the United States. The analysis and empirical estimates indicate, first, that consumption has historically been far below sustainable income; second, that conventional Hicksian measures of national income are poor proxies for sustainable income; and, third, that the true savings rate has declined significantly in the last two decades.

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File URL: http://cowles.econ.yale.edu/P/cd/d11a/d1101.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1101.

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Length: 32 pages
Date of creation: May 1995
Date of revision:
Handle: RePEc:cwl:cwldpp:1101

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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Cited by:
  1. Weitzman, Martin L., 1998. "On the welfare significance of national product under interest-rate uncertainty," European Economic Review, Elsevier, vol. 42(8), pages 1581-1594, September.
  2. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
  3. Weitzman, Martin L., 1999. "Pricing the Limits to Growth from Minerals Depletion," Scholarly Articles 3708467, Harvard University Department of Economics.
  4. Areendam Chanda, . "The Rise in Returns to Education and the Decline in Household Savings," Departmental Working Papers 2005-05, Department of Economics, Louisiana State University.
  5. Céline Antonin & Thomas Mélonio & Xavier Timbeau, 2012. "L'epargne nette ré-ajustée," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 259-286.
  6. Martin L Weitzman, 1999. "A Contribution to the Theory of Welfare Comparisons," Harvard Institute of Economic Research Working Papers 1864, Harvard - Institute of Economic Research.
  7. Australian Treasury, 2001. "Global poverty and inequality in the 20th century: turning the corner?," Economic Roundup, Treasury, Australian Government, issue 1, pages 1-52, May.
  8. Beça, Pedro & Santos, Rui, 2010. "Measuring sustainable welfare: A new approach to the ISEW," Ecological Economics, Elsevier, vol. 69(4), pages 810-819, February.
  9. Areendam Chanda, 2002. "Can Skill Biased Technological Progress Have a Role in the Decline of the Savings Rate?," Macroeconomics 0202004, EconWPA.

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