much smaller in percentage terms for welfare (6 percent) than it is for the other two variables (18 or 19 percent). On the other hand, the di¤erences can be striking. For example, Canada, which is the second only to the US in GDP and third judged by consumption, is third from the bottom in our welfare ranking. Canada, which leads Spain by 20 percent or more in terms of consumption and GDP per capita, trails Spain by about 10 percent in our welfare comparison. Indeed, Spain is last within our group of countries in terms of the conventional metrics of consumption and GDP, but ranks fourth in welfare terms, trailing only the US, UK and France. For the other countries, the welfare measure is not so kind. Japan trails the US by only 26 percent in GDP per capita, but double that— 52 percent— in terms of welfare. Similarly, Italy has more than 60 percent of the per-capita GDP of the US, but only about one-third the welfare level. On the other hand, France trails the US by 40 percent in consumption per capita, but by only half that amount in terms of a welfare. Thus, our measure clearly provides new information on welfare di¤erences among countries.

# 6 Relationship to the Literature

Measuring welfare change over time and di¤erences across countries using observable national income accounts data has been a long-standing challenge for economists. We note here the similarities and di¤erences between our approach and ones that have been taken before. We also suggest ways in which our results might be useful in other ...elds of economics, where the same question arises in di¤erent contexts.

Nordhaus and Tobin (1972) originated one approach, which is to take a snapshot of the economy’s ‡ow output at a point in time and then go “beyond GDP,” by adjusting GDP in various ways to make it a better ‡ow measure of welfare. Nordhaus and Tobin found that the largest gap between ‡ow output and ‡ow welfare comes from the value that consumers put on leisure. Their result motivated us to add leisure to the period utility function in our model, which is standard in business-cycle analysis but not in growth theory. Nordhaus and Tobin’s approach has been followed recently by Jones and Klenow (2010) who add other corrections, notably for life expectancy and inequality. However, this point-in-time approach does not take into account the link between today’s choices and future consumption or leisure possibilities. For example, high consumption in the measured period might denote either permanently high welfare or low current investment. Low investment would mean that consumption must fall in the future, so its current level would not be a good indicator of long-term welfare. Our approach is to go beyond point-in-time measures of welfare and compute the expected present discounted value of consumers’entire sequence of period utility. In so doing, we also shift the focus from consumers’particular choices of one period’s consumption and leisure to their intertemporal choice sets, as de...ned by their assets and the sequence of prices they face. This approach pays o¤ particularly when we measure welfare di¤erences across countries.

Our intertemporal approach echoes the methods used in the literature started by Weitzman 33