Well-being beyond GDP: Experimental monitoring in the 2017 budgetary plan

Well-being beyond GDP: Experimental monitoring in the 2017 budgetary plan

November 15, 2017

elena.giarda@prometeia.comelizabeth.casabianca@prometeia.com 

Various supranational institutions have committed themselves to defining and selecting a set of indicators that complement GDP

 

Over the last decade, the idea of assessing the "well-being" of a country in a wider perspective by considering other dimensions in addition to GDP growth, has become increasingly popular [1]. Various supranational institutions, including the OECD and the European Commission, have committed themselves to defining and selecting a set of indicators that complement GDP to provide guidance on the overall well-being of a society. 

Italy is the first country in Europe that has started monitoring and forecasting a selection of these indicators in the design and assessment of government budgetary policies. The process began in 2010, when Istat (Institute of national statistics) and CNEL (National council for economics and labour) launched the project “Benessere equo e solidale” (Equitable and sustainable well-being), which led to the definition of 130 indicators, divided into twelve domains, monitored annually in a Report since 2013 [2]. More importantly, a specially appointed Committee identified twelve indicators to be included in the budgetary plan (DEF, Documento di Economia e Finanza) starting from this year [3].  

The table lists and classifies the twelve selected indicators. The areas covered go beyond the economic sphere to include others such as health, safety and the environment. The aim is to observe the effects of national policies on measures that are able to grasp the overall well-being of a society and its sustainability, and therefore go “beyond GDP". 

Four of these indicators were included, experimentally, in DEF 2017, while the remaining eight will be included as of 2018 [4]. 

 
The twelve indicators monitored in the DEF, by domain 
 
Source: Istat (2016) "Rapporto Bes 2016: il benessere equo e sostenibile in Italia”, Statistical Appendix
 
 

The initial four indicators are:

(i) per-capita disposable income in nominal terms,
(ii) inequality index of equivalised disposable income
(iii) rate of non-participation in the labour market
(iv) emissions of carbon dioxide and other greenhouse gasses.

For each of the four indicators, the document reports their historical trend in the last three-year period and their forecasts according to the economic scenario based on unchanged legislation as well the policy scenario. 

The main strengths of the twelve selected indicators are their prompt responsiveness to the adopted public policies as well as the feasibility and timeliness of the historical series from which they derive. Should the indicators come short of these features or should new needs arise, the Committee retains the option to choose alternative ones. Indeed, some of them already present some limitations. For instance, monitoring per capita disposable income in real terms, rather than its nominal value, could offer clearer indications of changes in household purchasing power.

Additionally, using the income quintile ratio (ratio of the average income of the richest 20 percent of the population to the average income of the poorest 20 percent of the population) as a measure of income inequality poses a risk of underestimating the gap between the extreme tails of the income distribution. 

To sum up, the inclusion of welfare indicators into economic and budgetary programming is an important innovation that helps complement the information provided by the macroeconomic variables traditionally monitored in the DEF. Moreover, we welcome the government's efforts to begin a more serious assessment of the impact of economic policies on the country's well-being.

However, how the relevant authorities intend to evaluate the evolution of the selected indicators in relation to the policy scenarios remains an open question. This challenge is particularly significant for the indicators that show a weaker correlation with economic policies, as well as reaction times that are observable over a longer period than that covered in the DEF. 

 
 
[1] See “Beyond GDP” ”, European Commission, 2007, and “Report by the Commission on the Measurement of Economic Performance and Social Progress”, 2009.
[2] See: http://www.misuredelbenessere.it
[3] The Committee is chaired by the Minister of Economy and Finance, while the executive board is composed of the President of Istat, the Bank of Italy’s Governor and two national experts. 
[4] “Relazione finale del Comitato per gli indicatori di benessere equo e sostenibile”, 20 June 2017.