A New Cross-Country Measure of Material Wellbeing and Inequality: Methodology, Construction and Results

Abstract

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Income or Consumption: Which Better Predicts Subjective Well‐Being?

“…There is also a growing body of literature that utilizes consumption as an input for the construction of aggregate measures of well‐being (Kahneman et al, ; Jones and Klenow, ; Attanasio et al, ; Grimes and Hyland, ). These studies demonstrate that consumption‐based measures of well‐being correlate well with other objective measures of living standards such as GDP and life expectancy.…”

“…The material well‐being provided by an item is considered the same, irrespective of its (local) market price. Deaton () and Grimes and Hyland () emphasize the difficulties of making comparisons of real income between countries. Comparisons are exacerbated by the presence of disparate relative prices and complexities involved in the valuations of government and housing services, both internationally and inter‐regionally.…”

“…These three approaches are: (1) The old OECD household income equivalization method sometimes referred to as the “Oxford Scale.” This is the same as the “Modified” scale, except it places a higher weighting on every subsequent adult after the first occupant (0.7) and each child living in the house (0.5); (2) The Square Root method, where household income is divided by the square root of the number of occupants, regardless of their age. This method may be employed when there is no data on the age of household occupants (for example, Grimes and Hyland, ); and (3) The Per Person equivalization method, where household income is divided by the total number of occupants. This method is relatively crude and employed less often.…”

Income or Consumption: Which Better Predicts Subjective Wellbeing?

“…There is a growing body of literature that utilises consumption as an input for the construction of aggregate measures of wellbeing (Kahneman et al, 1997;Jones & Klenow, 2010;Attanasio et al, 2012;Young, 2012;Grimes & Hyland, 2015). These studies incorporate Friedman's insights arising from the permanent income hypothesis that highlight the closer link of current consumption than current income to an individual's utility.…”

“…The material wellbeing provided by an item is considered the same, irrespective of its (local) market price. Deaton (2008) and Grimes and Hyland (2015) emphasise the difficulties of making comparisons of real income between countries. Comparisons are exacerbated by the presence of disparate relative prices and complexities involved in the valuations of government and housing services, both internationally and inter-regionally.…”