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International Comparisons of Living Standards by Equivalent Incomes

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  • Marc Fleurbaey
  • Guillaume Gaulier

Abstract

International comparisons of living standards are still primarily made using GDP per capita, in spite of recurrent criticism that this is a partial and ill-founded measure of social welfare (Sen). Alternative measures abound, such as the Index of Human Development computed by the United Nations Development Program since 1990 or Osberg and Sharpe’s Index of Economic Well-being. The problem is that these indicators are based on the aggregation of various subindexes of social performance, arbitrarily weighted. We suggest reliance on a basic notion of welfare economics, namely, compensating variations, which take into account country differences in non-income dimensions of living standards (such as leisure, health, etc) and make international comparisons possible. We use compensating variations in a way that is consistent with recent developments in social choice theory, so that our work is closely tied to a theoretically sound notion of social welfare.

Suggested Citation

  • Marc Fleurbaey & Guillaume Gaulier, 2007. "International Comparisons of Living Standards by Equivalent Incomes," Working Papers 2007-03, CEPII research center.
  • Handle: RePEc:cii:cepidt:2007-03
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    Keywords

    Living standards; Social welfare; GDP; Equivalent income; OECD;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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