New ESCoE Discussion Paper

A Democratic Measure of Household Income Growth: Theory and Application to the United Kingdom

by Andrew Aitken1,2 and Martin Weale3,4  

1,3Economic Statistics Centre of Excellence, 2National Institute of Economic and Social Research, 4Centre for Macroeconomics and King’s College, London


This paper develops a price and quantity system of indicators structured round Atkinson’s concept of inequality aversion. A democratic indicator of income growth, weighting each household’s growth experience equally, is shown to result when Prais’ democratic price index is used to deflate the geometric mean of equivalised household income. A welfare interpretation of the democratic indicator of income growth is provided and it is shown that, with heterogeneous but homothetic preferences, the deflator can serve as a common scaling social cost of living index when applied to income as well as to consumption. Application to United Kingdom household data suggests that, over the interval 2005/6-2015/6 democratic real equivalised household income grew by 0.20 per cent per annum while the plutocratic equivalent grew by 0.52 per cent per annum.

ESCoE DP-2018-02

Monday, February 26, 2018