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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.

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  • 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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    Cited by:

    1. Martin Weale & Andrew Aitken, 2021. "On Household Costs Indices," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2021-16, Economic Statistics Centre of Excellence (ESCoE).
    2. Bart Los & Marcel P. Timmer, 2020. "Measuring Bilateral Exports of Value Added: A Unified Framework," NBER Chapters, in: Challenges of Globalization in the Measurement of National Accounts, pages 389-421, National Bureau of Economic Research, Inc.
    3. Martin Weale & Andrew Aitken, 2021. "Deflation of Distributional National Accounts," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2021-01, Economic Statistics Centre of Excellence (ESCoE).
    4. Diane Coyle & Leonard Nakamura, 2022. "Time Use, Productivity, and Household-centric Measurement of Welfare in the Digital Economy," International Productivity Monitor, Centre for the Study of Living Standards, vol. 42, pages 165-186, Spring.
    5. Diane Coyle & Leonard I. Nakamura, 2019. "Toward a Framework for Time Use, Welfare, and Household Centric Economic Measurement," Working Papers 19-11, Federal Reserve Bank of Philadelphia.
    6. Marina Tkalec, 0000. "Inflation response to the COVID-19 pandemic and government interventions: Evidence from EU-27," Proceedings of Economics and Finance Conferences 14216251, International Institute of Social and Economic Sciences.
    7. Andrew Aitken & Martin Weale, 2022. "Measuring National Income Growth Democratically: Methods and Estimates for the United Kingdom," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2022-17, Economic Statistics Centre of Excellence (ESCoE).
    8. Diane Coyle & David Nguyen, 2020. "Free goods and economic welfare," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2020-18, Economic Statistics Centre of Excellence (ESCoE).

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    Keywords

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    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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