Beyond GDP and life expectancy: welfare comparisons across the Atlantic

Prior studies assessing welfare across countries have utilised measures that combine country-level outcomes in income and life expectancy (or average lifespan). However, this perspective remains blind to the fact that two countries may have the same life expectancy or average income but very different underlying distributions from which they are derived. In this paper, I introduce a new preference-based measure of social welfare that is sensitive to within-country disparities in lifespan and income. To illustrate the measure, I compare welfare levels/trends between the EU and the USA. The results reveal that while the EU lags behind the USA in terms of average income, the gap is reduced or eliminated when welfare is measured more broadly. Moreover, EU welfare growth rates tend to increase, relative to the income-only case, as more importance is placed on the improvements accruing to the worst-off in society. In contrast, US growth rates are generally lower when its poorer health outcomes and higher levels of inequality are taken into account.