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Measuring The Distribution Of Well-Being: Why Income and Consumption Give Different Answers

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  • Sabelhaus, John
  • Schneider, Ulrike

Abstract

Annual, before-tax income is the most common official statistic used to measure economic well-being and therefore underlies the design of most anti-poverty programs or other redistributive economic policies. Notwithstanding, extended income measures as well as consumption based measures are gaining increasing currency in scientific analysis of economic well-being. Our findings suggest that a consumption-based measure gives very different answers about relative economic standing across income and age groups, and somewhat different answers about trends in resources over time. More importantly, by explicitly measuring the relationship between income and consumption across groups and time, we are able to evaluate how differences in effective taxation, saving rates, and investment in consumer durables affect the alternative measures of economic well-being.

Suggested Citation

  • Sabelhaus, John & Schneider, Ulrike, 1997. "Measuring The Distribution Of Well-Being: Why Income and Consumption Give Different Answers," Hannover Economic Papers (HEP) dp-201, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-201
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    References listed on IDEAS

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    Cited by:

    1. Florence Bouvet & Chong-Uk Kim, 2014. "Are US imports really hurting US households?: an analysis of the relationship between US households' consumption and US imports," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 16(2), pages 157-178.
    2. Jurgen Faik & Uwe Fachinger, 2013. "The decomposition of well-being categories: An application to Germany," Working Papers 307, ECINEQ, Society for the Study of Economic Inequality.
    3. Riccardo Massari, 2005. "A Measure of Welfare Based on Permanent Income Hypothesis: An Application on Italian Households Budgets," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(1), pages 55-92, September.

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    More about this item

    Keywords

    Economic Welfare; Measurement of Inequality; Demographic Economics; Income; Saving; Consumption; Taxation;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J1 - Labor and Demographic Economics - - Demographic Economics

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