Towards ISEW and GPI 2.0, part II: Is Europe faring well with growth? Evidence from a welfare comparison in the EU-15 from 1995 to 2018

This paper is the first to calculate economic welfare for the EU-15 countries in a standardized and comparable way. This paper does so by building on a case study for Belgium by Van der Slycken and Bleys (2021) that puts forward a “2.0 methodology” and two distinct welfare measures that deal with cross-time and cross-boundary issues. Both welfare and GDP per capita improved in the EU-15 between 1995 and 2018. Yet, there is an important divergence between welfare and GDP: over time experiential welfare per capita and the per capita benefits and costs of present activities improved by respectively 10.5% and 14%, while GDP per capita grew by 32.4%. These trends in per capita welfare are mainly driven by individual consumption growth, the shadow economy and the welfare losses from income inequality, which compensated about half of the welfare gains of the former two categories. The gap between welfare and GDP diverges especially after the financial crisis when welfare starts stagnating. At the end of the studied period, the EU-15 had already recovered from the financial crisis from a GDP perspective, but it has not from a welfare view. Since the welfare levels in 2018 are less than 2% lower than the period-maximum, there is no conclusive evidence in favor of the threshold hypothesis at the level of the EU-15. The fact the welfare level in nine individual countries is more than 5% lower than its the peak value, however, signals a clear threshold for these countries. Yet, welfare levels could be increased beyond previous peak levels with effective social and environmental welfare policies in place that focus on redistributing and respecting environmental boundaries our economies instead of promoting economic growth.