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

  • Michael Harris

    ()

    (School of Economics, La Trobe University)

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    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.

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    File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0004/130882/2001.09.pdf
    File Function: First version, 2001.09.pdf
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    Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2001.09.

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    Length: 58 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:trb:wpaper:2001.09
    Contact details of provider: Web page: http://www.latrobe.edu.au/economics

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    1. Holub, Hans Werner & Tappeiner, Gottfried & Tappeiner, Ulrike, 1999. "Some remarks on the 'System of Integrated Environmental and Economic Accounting' of the United Nations," Ecological Economics, Elsevier, vol. 29(3), pages 329-336, June.
    2. Common, Mick & Sanyal, Kali, 1998. "Measuring the depreciation of Australia's non-renewable resources: a cautionary tale," Ecological Economics, Elsevier, vol. 26(1), pages 23-30, July.
    3. Karl-Göran Mäler, 1991. "National accounts and environmental resources," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 1-15, March.
    4. Hanley, Nick & Moffatt, Ian & Faichney, Robin & Wilson, Mike, 1999. "Measuring sustainability: A time series of alternative indicators for Scotland," Ecological Economics, Elsevier, vol. 28(1), pages 55-73, January.
    5. Asheim, Geir B, 1997. " Adjusting Green NNP to Measure Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 355-70, September.
    6. Pezzey, John C V & Withagen, Cees A, 1998. " The Rise, Fall and Sustainability of Capital-Resource Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(2), pages 513-27, June.
    7. Asheim, Geir B, 1994. " Net National Product as an Indicator of Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 257-65.
    8. Dan Usher, 1973. "The Measurement of Economic Growth," Working Papers 145, Queen's University, Department of Economics.
    9. Harris, Michael & Fraser, Iain, 2002. "Natural resource accounting in theory and practice: A critical assessment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(2), June.
    10. Stockhammer, Engelbert & Hochreiter, Harald & Obermayr, Bernhard & Steiner, Klaus, 1997. "The index of sustainable economic welfare (ISEW) as an alternative to GDP in measuring economic welfare. The results of the Austrian (revised) ISEW calculation 1955-1992," Ecological Economics, Elsevier, vol. 21(1), pages 19-34, April.
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