This paper extends the basis in economic theory for solving the problem of how to make comparisons of aggregate quantities and price levels across two or more countries. The extension is achieved within an intertemporal collective choice framework featuring a utilitarian social welfare function, household preference orderings over vectors of private and public goods that are additively separable by periods, an instantaneous income function that depends on a vector of previously accumulated capital stocks measured in efficiency terms, and an instantaneous expenditure function that yields the minimum cost of producing a chosen vector of public goods at a given vector of factor prices. The Konüs-type conditional social cost-of-living and country-specific-PPP indexes of private consumption are shown to fall out of this framework, as are analogously defined PPP indexes of investment, government and GDP. (Such a PPP index yields the factor by which a society’s nominal expenditure on GDP—or a main component thereof—at one country’s prices must be deflated in order to make it equal to the same nominal expenditure at another country’s prices.) Since these indexes are defined in terms of relevant cost functions with conventional properties, bloc-specific counterparts can be constructed and analyzed in the same way as PPP indexes of private consumption. In other words, the definitions and results of Armstrong (JET, 2001) can be generalized to apply to the other main components of GDP as well as to GDP itself. The implications of these generalizations for practitioners of multilateral international comparisons are also discussed; the principal one being that the current practice of using an axiomatic PPP index of GDP that treats all constituent basic headings symmetrically is justifiable in terms of economic theory.
Key Words: economic approaches to index-number theory; index numbers; multilateral comparisons; purchasing power parities.
JEL Classification Numbers: C43, C81, D79, D99, F31, H49, O18, O57.