International / 13 October 2015, 05:41am / Daniel Dickson and Anna Ringstrom
Stockholm - Economist Angus Deaton has won the 2015 economics Nobel Prize for his work on consumption, poverty and welfare that has helped governments to improve policy through tools such as household surveys and tax changes.
The Royal Swedish Academy of Sciences said the British-born microeconomist's work had been a major influence on policy-making, helping for example to determine how different social groups are affected by specific changes in taxation.
“To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,” the award-giving body said in announcing the 8 million Swedish crown ($978 000) prize.
“More than anyone else, Angus Deaton has enhanced this understanding,” it said.
Deaton, 69, has spearheaded the use of household survey data in developing countries, especially data on consumption, to measure living standards and poverty, the academy said.
Deaton looks at economic development from the starting point of consumption rather than income, wrote Tyler Cowen, economics professor at George Mason University and blogger.
“Think of Deaton as an economist who looks more closely at what poor households consume to get a better sense of their living standards and possible paths for economic development,” Cowen wrote on the blog Marginal Revolution.
In his first public comments after winning the prize, Deaton said that while extreme poverty has fallen sharply in the last 20 to 30 years and that he expected this trend to continue, he did not want to sound like a “blind optimist”.
“While I expect things to get better, you have to keep remembering that we are not out of the woods yet and that for many, many people in the world, things are very bad indeed,” Deaton told a press conference by telephone.
“I think the current upwards trends in inequality are very worrying in many contexts around the world,” he added.
Those contexts include climate change and politics, Deaton said in a later news conference at Princeton University, where he is professor of economics and international affairs.
“I do worry about a world in which the rich get to write the rules,” said Deaton.
Deaton also linked inequality and slower economic growth to a “terrifying increase” in middle-aged mortality in the United States, which he is currently studying.
Impact of tax changes
In one key work, “The Great Escape; Health, Wealth and the Origins of Inequality”, Deaton describes the huge increase in global prosperity in the past two centuries, underpinned by medical and technological advances, but also looks in depth at the inequalities to which that progress has given rise.
Deaton developed a system for estimating how demand for each good depends on the prices of all goods and on individual incomes, now a standard tool for researchers and in practical policy evaluation, the academy said.
“Assume the government wants to change a tax like the VAT on food or gasoline or something, or to change income taxes. How will that affect demand for different commodities? How will that affect welfare for different groups in society?,” Mats Persson, a member of the prize awarding committee, told Reuters.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.
Deaton, who was born in Edinburgh and holds both British and US citizenship, joked that the Nobel official who called him took pains to assure him it was not a prank. He knew he was a candidate, but “I never thought it was a very likely event”.
Deaton was at a loss when asked what the future held, saying finally: “I would like to get back to work.”