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Economic growth, inequality, and well-being

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  • Howarth, Richard B.
  • Kennedy, Kevin

Abstract

In advanced industrial societies, rising levels of inequality have contributed strongly to the observed gap that has emerged between per capita income and the Index of Sustainable Economic Welfare (ISEW), which in its current versions is known as the Genuine Progress Indicator (GPI). Yet the ISEW/GPI approach to measuring the social costs of inequality has been criticized as ad hoc. The present paper reviews the literature on this topic and efforts to resolve it based on the construction of indicators grounded in: (a) a classical utilitarian ethical framework; and (b) empirical evidence on the relationship between income and well-being. In the United States, after-tax income per capita grew at an annual rate of 1.7% between 1979 and 2011. A growth rate of 1.2% per year arises when income is adjusted to account for the social costs of inequality. The most common adjustment used in ISEW/GPI studies yields a similar growth rate despite much smaller subtractions from baseline income.

Suggested Citation

  • Howarth, Richard B. & Kennedy, Kevin, 2016. "Economic growth, inequality, and well-being," Ecological Economics, Elsevier, vol. 121(C), pages 231-236.
    • Handle: RePEc:eee:ecolec:v:121:y:2016:i:c:p:231-236
    DOI: 10.1016/j.ecolecon.2015.10.005
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    2. Jonas Van der Slycken & Brent Bleys, 2020. "Cost-shifting Versus “Full” Accountability: Dealing with Cross-time and Cross-boundary Issues in the ISEW and GPI. An application to Belgium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 20/1003, Ghent University, Faculty of Economics and Business Administration.
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    12. Shuyang Chen, 2022. "The inequality impacts of the carbon tax in China," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
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