How Much Does Public Consumption Matter for Well-Being?

This report supplements previous findings of the Levy Institute Measure of Economic Well-Being (LIMEW) research project within our program on the distribution of income and wealth. Some readers have questioned the sensitivity of our estimates in view of our imputation techniques. Therefore, the authors explore the sensitivity of their key findings to changes in the set of assumptions that they use to impute public consumption, which is a major component of the LIMEW.

The authors consider alternative assumptions regarding three components of public consumption: general public consumption, highways, and schooling. New calculations for 1989 and 2000 show that their initial major findings remain intact using alternative estimation procedures: there is a positive correlation between public consumption and the LIMEW, overall inequality is higher in 2000 than 1989, and public consumption reduces inequality. The results show that their measure of economic well-being is robust under alternative assumptions of public consumption. They conclude that government provisioning of amenities plays an important role in sustaining living standards and should be included in a measure of economic well-being.