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How Should We Measure Sustainable Income?

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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