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The Income of Nations: Measurement with (What?) Theory

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  • Michael Harris

    () (Department of Economics and Finance, La Trobe University)

Abstract

Extensive activity is underway to revise the construction and measurement of national income statistics. However, the underlying definitions of income are not settled. At the broadest level, there is a conflict between income as an economic concept (consumption-related, inter-temporal) and an accounting concept (output-related, atemporal). More specifically, the distinction between ex ante income (maintainable consumption) and ex post income (actual consumption plus capital accumulation) is often blurred, for example. This raises the issue of the rationale for including capital in measures of income, and the possible interpretations of such measures as returns to wealth I identify two distinct rationales for adding capital to consumption in an economically meaningful measure future consumption postponed versus current consumption foregone, which differ due to the effect of diminishing returns in production and argue that they lead to two distinct interpretations of income: the stationary- equivalent of future consumption interpretation versus the stationary-state- equivalent interpretation. I argue that the choice of one or other of these interpretations has implications for a raft of national accounting issues, such as the treatment of capital gains, the pricing of investment goods, and the treatment of technological change.

Suggested Citation

  • Michael Harris, 2001. "The Income of Nations: Measurement with (What?) Theory," Working Papers 2001.09 EDIRC Provider-In, School of Economics, La Trobe University.
  • Handle: RePEc:ltr:wpaper:2001.09
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    File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0004/130882/2001.09.pdf
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    Cited by:

    1. Luigi Cannari & Giovanni D'Alessio & Romina Gambacorta, 2007. "Capital gains and wealth distribution in Italy," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 2, volume 26, pages 129-156 Bank for International Settlements.

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