Scand. J. of Economics 111(3), 597–624, 2009 DOI: 10.1111/j.1467-9442.2009.01578.x International Comparisons of Living Standards by Equivalent Incomes ∗ Marc Fleurbaey University Paris Descartes, FR-75006 Paris, France marc.fleurbaey@parisdescartes.fr Guillaume Gaulier Banque de France, FR-75001 Paris, France guillaume.gaulier@cepii.fr Abstract We propose a measure of living standards for international comparisons. Based on GDP per capita, the measure incorporates corrections for international flows of income, labor, risk of unemployment, healthy life expectancy, household demography and inequalities. The method for comparing populations that differ in some non-income dimension consists of computing the equivalent variation of income that would make each population indifferent between its current situation and a reference situation with respect to the non-income dimension. This is applied to 24 OECD countries. The obtained ranking of countries differs substantially from the GDP ranking. Keywords: Social welfare; money-metric utility; GDP; OECD JEL classification: D60; D71; O57; P17 I. Introduction International comparisons of living standards are still primarily made with GDP per capita, in spite of recurrent criticism that this is a partial and ill- founded measure of social welfare; see e.g. Sen (1979). Alternative meas- ures abound, such as the Index of Human Development computed by the United Nations Development Program since 1990, Osberg and Sharpe’s (2002) Index of Economic Well-being, and Miringoff and Miringoff’s (1999) Index of Social Health. They are based on the aggregation of various sub- indices of social performance, and the weights used for this aggregation have no rational basis. In this paper, we propose to rely on a basic notion of welfare eco- nomics, namely, equivalent income (also called money-metric utility), in ∗ We thank R. Boarini and M. Mira d’Ercole for their help with OECD data; A. Benassy- Qu´ er´ e, L. Fontagn´ e, K. O. Moene, G. Ponthiere and two anonymous referees for their com- ments; and participants at a conference in Luxembourg and a seminar at CEPII. The usual disclaimer applies. C  The editors of the Scandinavian Journal of Economics 2009. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.