Abstract
In this paper, we disagree on the opportunity to use the double deflation method to produce an equilibrating system of account at a constant price. In fact, by relaxing such a condition, by means of the single deflation method, we obtain a measure of purchasing power transfer that can be decomposed in productivity and market distortion. Results are presented for the evolution of the Italian economy for the periods 1995–2002.
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Notes
- 1.
In addition to the expenditure and output approach the GDP at constant prices can also be obtained from an income side approach. However, when we move into a constant prices context only output and expenditure measures can be used since the income measure of GDP would require a direct observation of its components, both labour income and operative surplus. While the former is, to some extent, directly observable, the latter is usually determined as a residual.
- 2.
The work of Devicienti, Maida, and Pacelli (2007) shows that, after the national labour market reform, wages became more flexible since they are now more responsive to local unemployment. Before the reform wages were set within a centralized bargaining with automatic indexation of wages to the real inflation. The reform has, instead, introduced a new bargaining system. The centralized bargaining process still remains in order to set the industry wide national wage, but with indexation to the Government’s target inflation (which is always lower than the real inflation). The additional wage distributed to the workers (or the top up component) is now set according to the firm and regional conditions.
- 3.
The use of Tornqvist’s index for productivity measures has been strongly recommended by Wolf (1985, 1989) and Fontela (1994). For the limitations of the Törnqvist Divisia index see Martini (1992).
- 4.
We thank an anonymous referee for making this point.
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Garau, G., Lecca, P., Schirru, L. (2010). Total Factor Productivity Surpluses and Purchasing Power Transfers: An Application to the Italian Economy. In: Biggeri, L., Ferrari, G. (eds) Price Indexes in Time and Space. Contributions to Statistics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2140-6_10
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