Is the output growth rate in NIPA a welfare measure?

This paper shows that, in a dynamic general equilibrium framework, the rate of output growth as measured by national income and product accounts reflects changes in welfare in the precise sense of equivalent variation. The main argument is straightforward. In a two-sector dynamic general equilibrium model of heterogeneous households, recursive preferences and quasi-concave technology, the Bellman equation provides a representation of household preferences over current consumption and investment. When applied to this representation of preferences, a Fisher–Shell true quantity index turns out to be equal to the Divisia index, closely approximated by the Fisher ideal chain index used in national income and product accounts.