Computation of Equivalent Incomes and Social Welfare for EU and Non-EU Countries

Individual well-being depends not only on monetary income but is affected by various non-income dimensions of human life. While this is now broadly acknowledged, a unanimous way to measure such multidimensional well-being does not exist. In this article we examine the various approaches that have been proposed in this vein in welfare economics, by highlighting their strengths and weaknesses, and devote particular attention to the equivalent income. We use this indicator to compute individual well-being and social welfare for all the European Union (EU) and some non-EU countries with the data from the 3rd wave of the European Quality of Life Survey referred to the period 2011–2012. Our analysis shows that, whether we adopt a utilitarian or rank-dependent representation of social preferences, the ranking of countries based on their equivalent incomes is substantially different from that based on monetary incomes.