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A Democratic Measure of Household Income Growth: Theory and Application to the United Kingdom

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  • Andrew Aitken

    ()

  • Martin Weale

    ()

Abstract

This paper develops a price and quantity system of indicators structured round Atkinson's concept of inequality aversion. A democratic indicator of income growth, weighting each household's growth experience equally, is shown to result when Prais' democratic price index is used to deflate the geometric mean of equivalised household income. A welfare interpretation of the democratic indicator of income growth is provided and it is shown that, with heterogeneous but homothetic preferences, the deflator can serve as a common scaling social cost of living index when applied to income as well as to consumption. Application to United Kingdom household data suggests that, over the interval 2005/6-2015/6 democratic real equivalised household income grew by 0.20 per cent per annum while the plutocratic equivalent grew by 0.52 per cent per annum.

Suggested Citation

  • Andrew Aitken & Martin Weale, 2018. "A Democratic Measure of Household Income Growth: Theory and Application to the United Kingdom," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2018-02, Economic Statistics Centre of Excellence (ESCoE).
    • Handle: RePEc:nsr:escoed:escoe-dp-2018-02
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    File URL: https://www.escoe.ac.uk/wp-content/uploads/2017/02/ESCoE-DP-2018-02.pdf
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    References listed on IDEAS

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    1. Kehoe, Timothy J. & Levine, David K. & Romer, Paul M., 1990. "Determinacy of equilibria in dynamic models with finitely many consumers," Journal of Economic Theory, Elsevier, vol. 50(1), pages 1-21, February.
    2. Dale W. Jorgenson & J. Steven Landefeld & Paul Schreyer, 2014. "Measuring Economic Sustainability and Progress," NBER Books, National Bureau of Economic Research, Inc, number jorg12-1, October.
    3. Oulton, Nicholas, 2008. "Chain indices of the cost-of-living and the path-dependence problem: An empirical solution," Journal of Econometrics, Elsevier, vol. 144(1), pages 306-324, May.
    4. Dale W. Jorgenson & J. Steven Landefeld & Paul Schreyer, 2014. "Introduction to "Measuring Economic Sustainability and Progress"," NBER Chapters, in: Measuring Economic Sustainability and Progress, pages 1-16, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Leonard I. Nakamura & Diane Coyle, 2019. "Toward a Framework for Time Use, Welfare, and Household Centric Economic Measurement," Working Papers 19-11, Federal Reserve Bank of Philadelphia, revised 12 Feb 2019.
    2. Bart Los & Marcel Timmer, 2018. "Measuring Bilateral Exports of Value Added: A Unified Framework," NBER Chapters, in: The Challenges of Globalization in the Measurement of National Accounts, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Real Income; Inequality Aversion; Welfare Indicator; Cost of Living;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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