We present estimates of welfare by country for 2007 and 2014 using the methodology of
Jones and Klenow (2016) which incorporates consumption, leisure, mortality and
inequality, and we extend the methodology to include environmental externalities. During
the period of the global financial crisis welfare grew slightly more rapidly than income per
capita, mainly due to improvements in life expectancy. This led to welfare convergence in
most regions towards advanced country levels. Introducing environmental effects changes
the welfare ranking for countries that rely heavily on natural resources, highlighting the
importance of the natural resource base in welfare. This methodology could provide a
theoretically consistent and tractable way of monitoring progress in several Sustainable
Development Goal (SDG) indicators.
It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.