The Sustainable Welfare Index: Towards a Threshold Effect for Italy

GDP, as a key parameter for macro-economic policy, has long been criticized. One of the better known monetary alternatives to GDP is the ISEW, a synthetic proxy of sustainable welfare. Theoretical and methodological limitations of this indicator have been identified and several refinements or extensions proposed, GPI for example. Building on these approaches, this article presents a new composite flow-oriented indicator directly comparable with GDP. The proposed Sustainable Welfare Index (SWI) is calculated for the Italian case over the 1960-2014 period. The estimate of SWI over an extended period of fifty-four years, provides evidence for a previously undetected “threshold effect” in Italy by means of a flow-oriented indicator - unlike GDP, SWI per capita stops increasing in 1991. Empirical results show that the level of sustainable welfare in Italy stops growing mainly because of a rise in income inequality, a decline in non-paid domestic work and a worsening of the net fixed capital formation and net international investment position.