Intra-generational equity and sustainable welfare: a time series analysis for the UK and Sweden

Abstract

This paper discusses the importance of intra-generational equity to sustainable development. It outlines a number of methodologies for measuring income inequality in the economy, and presents several possible ways of incorporating the impact of distributional effects into measures of welfare in the economy. The authors highlight in particular an index developed by Atkinson (Atkinson, A.B., 1970. Distributive politics and economic growth. Q. J. Econ., May, 465–490.) based on the social welfare model. This method possesses two main advantages over other methods. Firstly, it is expressed directly in terms of social well-being. Secondly, value judgements incorporated into the measure are made explicit through the parameter ε which expresses society’s degree of aversion to income inequality. The paper calculates the value of the Atkinson index for two case study countries (Sweden and the UK) between 1950 and 1996 for a central estimate of ε=0.8. The results show that the welfare loss due to inequalities in the distribution of income varied between 5 and 10% for Sweden, and between 6 and 14% for the UK, with the higher values coming towards the end of the period. The paper explores the sensitivity of these results to changes in the value of ε for the case of the UK, and discusses the relevance of the work to the measurement of sustainable welfare.