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Cambridge Journal of Economics 2005 29(6):1073-1090; doi:10.1093/cje/bei076
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Household wealth, public consumption and economic well-being in the United States

Edward N. Wolff, Ajit Zacharias and Asena Caner*

* The Levy Economics Institute of Bard College (Edward N. Wolff, Ajit Zacharias and Asena Caner) and New York University (Edward N. Wolff)

Address for correspondence: Ajit Zacharias, Blithewood, Levy Economics Institute of Bard College, Annandale-on-Hudson, NY 12504, USA; email: zacharia{at}levy.org

Abstract

Standard official measures of household economic well-being in several countries are based on money income. The general consensus is that such measures are limited because they ignore certain crucial determinants of well-being. We examine two such determinants—household wealth and public consumption—in the context of the US. Our findings suggest that the level and distribution of economic well-being is substantially altered when money income is adjusted for wealth or public consumption. Over the 1989–2000 period, median well-being appears to increase faster when these adjustments are made than when standard money income is used. Adding imputed rent and annuity from household wealth to household income increases measured inequality, while adding public consumption reduces it. However, all three measures show about the same rise in inequality over the period.

Key Words: Living standards • Public consumption • Household wealth • Inequality

JEL classifications: D31, D6, H4, P16

Manuscript received December 1, 2003; final version received January 4, 2005.


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