Review of Expenditure Aggregates Derek Blades World Bank Consultant.

Review of Expenditure Aggregates

Derek Blades

World Bank Consultant

Contents

Expenditure aggregates

Valuation

Two measures of consumption

Main expenditure aggregates

Expenditure Aggregates of 1993 SNAFinal Consumption Expenditure

Households

Non-profit Institutions Serving Households

Government:

• Individual

• Collective

Gross capital formation

Gross fixed capital formation

Changes in inventories

Acquisitions, less disposals, of valuables

Balance of Exports and Imports

Exports of goods and services

Imports of goods and services

Gross Domestic Product

Expenditure Aggregates of 1993 SNAFinal Consumption Expenditure

Households

Non-profit Institutions Serving Households

Government:

• Individual

• Collective

Gross capital formation

Gross fixed capital formation

Changes in inventories

Acquisitions, less disposals, of valuables

Balance of Exports and Imports

Exports of goods and services

Imports of goods and services

Gross Domestic Product

Main Aggregates Categories Groups Classes Basic

Headings

Consumption expenditure by households 13 43 90 110

Consumption expenditure by NPISHs 1 1 1 1

Consumption expenditure by government: Individual Collective

5 1

7 1

16 5

21 5

Gross fixed capital formation 3 6 11 12

Change in inventories

1 1 1 2

Acquisitions less disposals of valuables 1 1 1 2

Balance of exports and imports 1 1 1 2

GDP 26 61 126 155

Household consumption expenditure

“Real” expenditures

• food, clothing, transport, rent, services….

Imputed expenditures:

• rents of owner-occupiers

• food and other goods for own consumption

• goods and services provided as income in kind

Consumption expenditure by NPISHs

Examples:• religious organisations (mosques, temples, churches, schools, clinics,

hospitals)• trade unions• political parties in multi-party states• UNICEF, OXFAM, Red Crescent

Consumption expenditure is the total of:• compensation of employees, • intermediate consumption, • consumption of fixed capital, • taxes less subsidies on production • minus any payments received from households for services provided.

Only one basic heading – no breakdown by type

Consumption Expenditure by Government

All levels of government are covered-central, federal, provincial, local, townships …

Consumption expenditure is the total of:• compensation of employees,

• intermediate consumption,

• consumption of fixed capital,

• taxes less subsidies on production

• minus any payments received from households for services provided.

Divided between “individual” and “collective”

Individual versus Collective

Most expenditures on housing, health, recreation and culture, education and social protection are individual. (21 basic headings)

Expenditures on general public services, defence, public order and safety, economic affairs and environment protection are collective. (5 basic headings)

Gross fixed capital formation (GFCF)

Goods that are expected to be used in production for several years

GFCF is always measured net of sales:• sales for scrap, sales to other domestic producers, exports of

second-hand assets

1993 SNA includes expenditures on software and on mineral exploration in GFCF

Three basic headings:• Machinery and equipment• Construction• Other products

Change in inventories

Work in progress - construction, ships…

Stocks of raw materials, finished goods, goods for resale, goods stored by government as strategic reserves, such as food and fuel.

Estimates may not be comprehensive but should cover important items such as food and fuel stocks, stocks of mining companies, large retailers...

Acquisitions less disposal of Valuables

Valuables are goods acquired as a store of value:• Precious metals

• Paintings and antiques

• Jewellery

Not used in production

Valuation

Valuation - general rule

General rule is to use the prices at which sales of goods and services are transacted - “purchasers” (or “market”) prices.

These prices may be reduced by discounts or rebates:

• bargaining, sales, bulk purchases…

Note that price data for ICP must also reflect discounts or rebates.

Valuation - imputed rents

Use rents actually paid for similar kinds of dwellings, in similar locations and with similar facilities

If not possible, rents are valued at cost - consumption of fixed capital, return on capital, regular maintenance, and insurance

Valuation – goods produced for own consumption

Prices in local markets for livestock, vegetables, fruit…

Estimated basic prices for furniture, textiles, hand-tools (retail prices less sales taxes and retail margins)

Valuation – Government and NPISH

Compensation of employees – not only wages and salaries

Intermediate consumption – valued at purchasers prices

Consumption of fixed capital – in current prices (not historical)

Taxes less subsidies on production minus any payments received from households

for services provided.

Valuation - GFCF

GFCF is valued at purchasers’ prices

Prices should include:

• cost of transport

• cost of installation

• and any fees or taxes for transfer of ownership.

Own-account production of fixed capital assets is valued at basic prices or, if not available, at the costs of production.

Valuation - Change in Inventories

The change in inventories must reflect only the physical change - not holding gains or losses due to changes in prices during the year.

The physical quantities of inventories at the beginning and end of the year are usually valued using the average prices over the year or, failing that, mid-year prices.

Valuation - Exports and Imports

Exports of goods and services

• Free-on-board (f.o.b.) prices

Imports of goods and services

• Cost, insurance, freight (c.i.f.) prices

Two Measures of Consumption

Two ways of looking at consumption

Who buys? Who consumes?

Consumption Expenditure versus Actual Consumption

Consumption expenditure

• Households

• Non-profit institutions

• Government:• Individual

• Collective

Actual consumption

• Households:• Household

expenditures

• Non-profit institutions

• Government individual expenditures

• Government:• Government collective

expenditures

To summarise:

Actual consumption of households consists of:• All consumption expenditure of households• All consumption expenditures of non-profit institutions

serving households• Individual consumption expenditures of government

Actual consumption expenditure of government consists of:• Collective consumption expenditures of government

ICP compares actual consumption, not consumption expenditures