An Introduction to System of National Accounts Lesson: VII Expenditure Components of GDP: Part I Fourth Intermediate-Level e-learning Course on 2008 System of National Accounts September - November 2014 08/08/14 SIAP 1
Content Introduction Per expenditure component: Scope Specific issues Measurement Classification Data sources 08/08/14 SIAP 2
Lesson Objectives At the end of this lesson, you are expected to Explain the key components of expenditure components of GDP; Understand underlying classifications for expenditure components of GDP; Identify data sources for various expenditure components; Explain various measurement issues. 08/08/14 SIAP 3
Final Consumption Expenditure Household final consumption expenditure NPISH final consumption expenditure Government final consumption expenditure 08/08/14 SIAP 4
What Sectors are Involved in which Expenditure Components? Households Government NPISH Household final consumption Fixed capital formation Changes in inventories Acquisition less disposal of valuables Government consumption Fixed capital formation Changes in inventories Acquisition less disposal of valuables NPISH consumption Fixed capital formation Changes in inventories Acquisition less disposal of valuables 08/08/14 SIAP 5
What Sectors are Involved in Which Expenditure Components? (contd.) Fixed capital formation Corporate Sectors Rest of the World (ROW) Changes in inventories Acquisition less disposal of valuables Imports and exports of goods and services 08/08/14 SIAP 6
What is Consumption? Expenditure? Actual Consumption? Through payment or through incurrence of a liability Monetary and non-monetary Some specific transfers in kind deemed transfers in cash (e.g., international relief goods) Expenditures, plus All other transfers in kind (for households) plus Individual consumption of government and NPISH Expenditure is core in the system! 08/08/14 SIAP 7
Accounting Rules Valuation purchaser prices Timing accrual 08/08/14 SIAP 8
Scope of Household Final Consumption Use of goods and services for direct satisfaction of human needs and wants Purchase of goods and services Own account production of goods Owner-occupied dwellings Services produced by paid domestic servants Wages and salaries in kind Expenditures on financial intermediation (FISIM) Services of insurance and pension funds Certain licenses and fees 08/08/14 SIAP 9
Household Final Consumption: Households as Consumers Each household is a consumer Some households are also producers Households with an unincorporated enterprise Households that live in their own home (owner-occupied dwelling) Expenditures on goods and services by households as producers are either intermediate consumption or fixed capital formation 08/08/14 SIAP 10
Household Final Consumption: Residency Household final consumption expenditure Includes: expenditures of residents abroad (e.g., for personal travel, study, medical treatment) Excludes: expenditures of non-residents 08/08/14 SIAP 11
Household Final Consumption: Classification and Level of Detail Classification CPC (Central Product Classification) COICOP (Classification of Individual Consumption by Purpose) RECOMMENDED LEVEL OF DETAIL: AT LEAST THE FOUR DIGIT LEVEL OF CPC 08/08/14 SIAP 12
Household Final Consumption: Specific Issues Bartered goods consumed by households Purchases of services from other households (e.g. cleaning, gardening) Business travel expenditure Distinction between remuneration in kind and intermediate consumption by employers Goods produced for own consumption Services for own consumption are excluded Valuables are also excluded 08/08/14 SIAP 13
Household Final Consumption: Data Sources Household budget surveys (HIES) Retail trade statistics Administrative data Production data Balance of payments (e.g., Travel) Foreign trade data Socio-demographic data 08/08/14 SIAP 14
Household Final Consumption: Common Indicator Data Examples: Rural/urban population projections Household formation rates, new dwelling approvals and completions (to extrapolate household maintenance) Sales by market stalls/retailers (CPI collection by-product) Abattoirs - meat/poultry sold for domestic consumption 08/08/14 SIAP 15
Household Final Consumption: Common Indicator Data Examples: Imports data on consumption goods Resident departures and length of stay abroad New private vehicle registrations Inpatient hospital nights and outpatient services Education enrollments and completions Provident Fund wages data Foreign exchange records of remittances 08/08/14 SIAP 16
Household Final Consumption: Compilation Methods Direct observations Continuous household survey Benchmark to indicator methods HIES plus BOP, retail surveys, admin data etc. Commodity flow methods Using supply and use data on domestic output and imports less intermediate consumption, Government and NPISH consumption, GFCF, change in inventories and exports. 08/08/14 SIAP 17
Household Final Consumption: Validation of the Estimates Growth rates (e.g., volume per capita) Correlation with development in disposable income, wages and salaries Comparison of implicit deflator with CPI Development of saving ratio Comparison of composition of consumption over time 08/08/14 SIAP 18
Consumption by Private NPISH: What are NPISH? Generally defined by law, mode of financing and target groups. Examples include: Social institutions Cultural institutions Philanthropic institutions Religious institutions Charitable institutions Sport clubs Other recreational organizations 08/08/14 SIAP 19
Consumption by Private NPISH: What do NPISH Produce? Generally: Goods and services provided for free to households Possibly: Small scale market goods and services 08/08/14 SIAP 20
Consumption by Private NPISH: What do NPISH Produce? Examples of goods and services provided for free: Charity (e.g., free food for the poor) Cultural facilities and events Religious events and counseling Sports facilities and events Political representation Meeting facilities Consumer support Health services 08/08/14 SIAP 21
Consumption by Private NPISHs: Valuation of Output Non-market producers in general: Output valuation from cost side thus: Output is sum of: Compensation of employees Intermediate consumption Consumption of fixed capital Other taxes on production 08/08/14 SIAP 22
Consumption by Private NPISH: Who uses the Non-market Output? Expenditure approach: NPISH themselves Actual consumption: Households 08/08/14 SIAP 23
Consumption by Private NPISH: Measurement and Valuation Consumption of NPISH = Total output minus Output sold General assumption in SNA: NPISH do not pay product taxes on their output Thus for NPISH: Consumption equals Output (nonmarket) 08/08/14 SIAP 24
Consumption Expenditure by NPISH: Classification Final consumption expenditures of NPISH can be classified according to: Goods and services produced by market or non-market producers; Expenditures on collective services or individual goods and services; Function or purpose Classification of the Purposes of NPISH (COPNI); and CPC good or service. 08/08/14 SIAP 25
Consumption Expenditure by NPISH: Data Sources Censuses/surveys of NPISH and/or donors/development partners Administrative records (e.g., from umbrella organizations) Household budget surveys Balance of payments transfers data Government finance grants data 08/08/14 SIAP 26
Consumption Expenditure by NPISH: Compilation Supply side estimates based on Direct surveys of NPISH or administrative records from umbrella organizations or regulatory sources. Surveys of development partners/donors, BOP data, Government data, international trade statistics, and business and household data on donations etc. Demand side estimates based on Household surveys and other indicator data Important to distinguish consumption from capital formation when using grants or funding data 08/08/14 SIAP 27
Government Final Consumption: What is Government? Government agencies Plus Non-profit institutions mainly controlled and financed by government units 08/08/14 SIAP 28
Consumption: What does Government Produce? Non-market output General administration Specific services for the general population (e.g., foreign policy) Individual services (e.g., education) Market output (usually small scale) 08/08/14 SIAP 29
Government Final Consumption: How is Government Output Measured? Non-market producers in general: Output valuation from cost side Thus output is the sum of: Compensation of employees Intermediate consumption Consumption of fixed capital Other taxes on production 08/08/14 SIAP 30
Government Final Consumption: Who uses Government Nonmarket Output? Expenditure approach: Government Actual consumption: General administration and services for the population as a whole: Government Individual government services Households 08/08/14 SIAP 31
Government Final Consumption: Measurement Government Final Consumption Expenditure Equals Total government output Less Goods and services sold on the market Less Own-account capital formation Plus Goods and services purchased to be provided for free to the population General rule in SNA: No product taxes on government output Thus for government: Consumption equals nonmarket output 08/08/14 SIAP 32
Government Final Consumption: Estimation Most common source: Government accounts Main estimation processes: Adjustment for time of recording Reclassifications Completing coverage (e.g., Local government, development budgets, extra budgetary grants and units) 08/08/14 SIAP 33
Government Final Consumption: Classification COFOG (Classification of the Functions of Government) 10 classes of which: Collective services: general public services; defence, public order and safety; economic affairs; environmental protection; and housing and community amenities plus parts of other classes. Individual services: Most parts of health; recreation, culture and religion; education; and social protection. 08/08/14 SIAP 34
End of Lesson VII part 1 08/08/14 SIAP 35