Measuring Welfare and Poverty in the European countries

Wealth or poverty assessments are very important parts of the economic theory. The paper describes basic known approaches and points out its advantages and drawbacks. The Utilitarism presents a social welfare function, the Neoclassical Economy developed cardinalistic criterions and the New Welfare Economics suggested ordinalist analysis. Unfortunately all the approaches are connected with some issues. Using GDP as a measure of welfare has a reason - if the economy is growing, so must welfare. Unfortunately, the GDP as a measure of social welfare can be considered problematic because the GDP calculates impacts of economic activities whether they are positive or negative. This and another criticism led to a supplementary theory developing some other indicators, e.g. the human development index. However, even the HDI has its limitations of use. On the other hand, the construction of the HDI enables decomposition of the index and adding some other components to enable taking into account some other phenomenon. Critics of the HDI consider that the HDI does not pay much attention to development from a global perspective and focuses on national ranking. Among others, the HDI also fails to include any freedom or environmental considerations. Therefore a modification of the HDI index is presented in the article by taking into account economic freedom and environmental issues. It analyses impact of this modification with respect to keeping logical relation between welfare and poverty. The empirical analysis showed that considering economic freedom and environmental issues as a part of social welfare leads to consideration of social welfare to be worse.