WEALTH, DISPOSABLE INCOME AND CONSUMPTION - Economics

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T t + Et = D t
(2.2)
where G is real government expenditures on goods and services and is
the government debt held by foreigners. Substituting (2.2) into (2.1) yields
aggregate wealth as a function of government expenditures and foreign
holdings of government debt:
(2.3)
The measurement of wealth developed in this study adopts the definition
of wealth given in (2.3). While (2.1) and (2.3) are equivalent, (2.3)
provides a more convenient basis for measurement because it allows us to
ignore difficult issues regarding the timing of future taxes and deficits.
Wealth depends on real government expenditures and not on how they are
financed. 2
2.1 Human wealth
∞
∑
i
∏
⎛ 1 ⎞
⎜------------------- ⎟Tt
⎝1+ r + i
t + j⎠
i = 1 j = 1
∞ i
d f
+ Dt + Gt + Et ∑ ∏
i = 1 j = 1
Wt = At – Dt + ( Lt – Gt) + Et
f
∞
∑
i
∏
i = 1 j = 1
⎛ 1 ⎞
⎜------------------- ⎟Gt
⎝1 + r + i
t + j⎠
⎛ 1 ⎞
⎜------------------- ⎟(
Lt
⎝1 + r + i–
Gt + i)
t + j⎠
According to the definition of wealth given in (2.3), human wealth is the
present discounted value of current and future labour income net of government
expenditures. If we let X =
L – G and denote its growth rate by x,
human wealth can be written as the product of current labour income net
of government expenditures, and a term that captures the effects of
expected future growth:
2. Admittedly, this representation of wealth does not address several real-world features.
In particular, consumers and governments typically cannot borrow at the same interest
rates, taxes are not lump sum, and some consumers may have finite horizons. The test will
be whether (2.3) provides an empirically useful measure of wealth.
D f