An Exact Measure of Welfare Change

Earl L. Grinols and Kar-yiu Wong

Canadian Journal of Economics, 1991, vol. 24, issue 2, 428-49

Abstract: This paper develops a measure of the change in welfare of a household or an economy due to exogenous shocks or policy changes. The measure can be applied in a wide range of economies of scale, imperfectly competitive markets, unemployment, and domestic distortionary taxes. The welfare change measure is decomposed into five terms, which identify the five sources of welfare impacts: tax revenue, international transfer and borrowing, terms of trade, consumption substitution, and production substitution. The measure is simple to interpret and easy to apply in practice. All statistical data and information required to compute these terms are generally available or can be estimated easily.

Date: 1991
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