Showing papers in "Review of Income and Wealth in 1986"

The integration of macro and micro data for the household sector1

Abstract: National accounts in their present form do not serve very well as a framework for microdata, largely because of differing concepts and coverage in the macro and micro data. This article identifies the differences in sectoring and the handling of imputations and attributions between macro and micro data, and then proposes a form of presentation of the macro accounts that will facilitate their integration. Data for the United States in 1980 are used as an illustrative example. The final section explores the consequences of the proposed alterations in the macro accounts for the analysis of saving and investment and the accumulation and distribution of wealth, using U.S. data for the period since 1947. The article concludes that the proposed alterations do lead to new analytical insights, and further, that in their present form the national accounts are both misleading and inadequate.

Stasis amid change income inequality in canada 1965‐1983

Abstract: Income inequality in Canada has not changed significantly over the past two decades, though this apparent stability may be surprising in view of the major economic and social changes that occurred over this period. The share of income going to the bottom quintile remains at about four percent while the top quintile continues to receive about 40 percent of income. Social trends such as lower fertility rates have coincided with increased female labour force participation to increase family incomes in the middle and upper-middle parts of the income spectrum. At the same time, the trend for baby boom children to establish their own separate households, and increased divorce and separation rates, have tended to create more small family units with low incomes. These social trends, in isolation of other factors, would have increased income inequality. However, economic factors have apparently offset these tendencies. Since employment income is concentrated in the middle and upper-middle ranges, the relative fall in this source of income over the past two decades tended to be equalizing. Similarly, the fact that a large part of total investment income accrues to the elderly who have below average income implies that the trend towards high interest rates has been equalizing. Finally, the social “safety nets” put in place in the mid-1960s and early 1970s have grown in relative importance, and this too has had an equalizing impact on the distribution of income. Given the overall stability in income inequality, the equalizing tendencies of economic factors such as high interest rates and relatively slow economic growth, with the large automatic responsiveness of governments' social safety net programs, appear to have just about exactly offset the disequalizing social factors of “baby boomers” leaving home, lower fertility, higher divorce and separation rates, and higher female labour force participation.

Flexibility in the next sna: the case for an institutional core

Abstract: This paper examines the purposes of the SNA and concludes that they frequently conflict with one another. Consequently, the structure of the SNA should be made more flexible. This can be achieved by means of a system of a general purpose core supplemented by special modules. This core is a full-fledged, detailed system of national accounts with a greater institutional content than the present SNA and a more elaborate description of the economy at the meso-level. The modules are more analytic and reflect special purposes and specific theoretical views. It is argued that future revisions will concentrate on the modules and that the core is more durable than systems like the present SNA.

Relating households' final consumption to household activities: substitutability or complementarity between market and non-market production*

Abstract: Household non-market production is not observed directly and therefore not known. This paper develops a methodological approach to the description of household production functions based on the assumption that household non-market production and household final consumption (as defined in National Accounts) are interdependent. What households produce and the way they produce depends to a large extent on what they may acquire on the market. Empirical data is provided both by the French National Accounts and Household Surveys. The study presents a nomenclature of household output by type of product derived from the nomenclature of household non-market productive activities, to which final consumption products as described in the National Accounting nomenclatures are matched. Final consumption commodities are classified according to the role they play in household non-market productive processes, and subdivided into three categories: “substitute products” which save households from producing similar commodities in the home; “complementary products” which are not produced by households, but serve to produce other goods and services; “pure final consumption products” which are neither produced by households nor serve in any further productive process before being actually consumed in the proper sense of the term. The combination of monetary and non-monetary indicators provides information on household modes of production and on trends of output over the past 15 years. The method is implemented here for all households, in a global approach. It may, nonetheless, be adapted and serve to study disparities among households stemming from their characteristics, or to estimate the implicit price at which household members value the use of their time; it may also be used to assess the impact of market output on the nature of household non-market production. National Accounts supply aggregate data on household final consumption, while time budget surveys constitute the main source of information on their activities. The method used in this study consists of matching the official nomenclatures used to structure the two sets of data, each designed to describe different aspects of one and the same economic unit. To be more precise, this study attempts to establish a correspondence between the nomenclature of activities and products (N.A.P.) [1] used in the French National Accounting System and the nomenclature of activities used in the French Time Budget Survey [2]. This matching procedure aims at showing up the substitutability or complementarity effects between household non-market production and output of the market sector.1 The assumption of interdependence between households' final consumption (as defined in National Accounts) and their non-market production leads to a classification of commodities acquired on the market into three categories: “substitute products”, which the household purchases rather than producing them itself; “complementary products”, which the household uses in order to produce other goods; and finally, “pure final consumption products”, which households do not produce (or no longer produce) and which they neither transform nor use in any further productive process.

Treatment of government activity on the production account

Abstract: This paper is the concluding part of a project described in an earlier paper in this journal.1 The conceptual partition of government services into intermediate, individual and collective consumption is connected to the framework of the SNA and ESA. The paper shows how elements from both systems can be welded together in order to describe government productive activity more clearly within the general make-use matrix approach. After an attempt to clarify some of the existing terminology, figures are presented which show that the partition is feasible, in principle. The data also support the necessity of distinguishing between individual and collective consumption of government services leading to the concept of total individual consumption. Finally, the paper concludes that intermediate use, if properly defined, should be introduced as a subcategory of government consumption, but not subtracted at present from GDP.

Education and the national wealth of the united states

Abstract: Human capital theory has motivated a great many empirical investigations into the relationship between education and earnings potential. These studies test refinements of the theory, but do not attempt to value education for the economy as a whole. This study develops series which track human wealth and its educational components for the United States from 1946 to 1980. Three related educational time sequences emerge: (1) schooling wealth, the present value of the current and future contributions of the existing schooling stock to national income; (2) net change in schooling wealth, the amount added to present value in that year; and (3) schooling investment, the present value of the future contributions of the new schooling conducted in that year. One important lesson of this exercise is that the last two series can be quite different as a result of the pattern of appreciation and depreciation of human wealth over the lifetimes of individuals. Moreover, education increases the age of peak human wealth and thus should shorten the period during which individuals save for retirement. This phenomenon may induce a demographic cycle in the nation's savings rate, especially evidenced with the aging of the baby-boom cohort. The magnitudes of the human and schooling wealth estimates are large when compared to financial wealth. For a 4 percent rate, the period-wide average for human wealth is five times-and schooling wealth 2.6 times-the Federal Reserve Board's measure of household net worth. These estimates are naturally sensitive to the discount rate chosen, but show that the gap between human and financial wealth has been widening and that the value of schooling provided in any year greatly exceeds its cost. Schooling represents a form of saving whose value is several times the conventional measure of saving.

Sur la structure generale du scn a partir de l'experience du systeme elargi de comptabilite nationale francais

Abstract: This paper describes the French enlarged system of national accounts, and discusses its relevance for the revision of the UN System of National Accounts. Part I develops the concept of a “Central System” of national accounts, and sets out its minimum requirements and the margins within which adjustments or variants would be acceptable. This part concludes that the Central System is the basic system of macro-economics, and must meet the needs of macro-economists both as to content and coherence. Part II discusses the issue of the complexity of SNA. It proposes the introduction of a “tableau economique d'ensemble” (TEE) to provide an overview of the Central System, and shows how certain complementary approaches dealing with population, employment, input-output, financial operations, and more detailed presentations of wealth accounts and institutional sector accounts can be related to the TEE. The third part discusses the possibilities of deriving directly the accounts of the Central System from microdata for individual units, concluding that although this may be possible in limited special cases such as central government, it is generally impractical. For certain sectors- especially non-financial corporate and quasi-corporate enterprises-a system of intermediate accounts is proposed, which would reflect the data that can be collected from these units without adjustments and/or corrections needed for the national accounts. For other sectors, notably households, only global treatment seems feasible. Part IV introduces the concept of satellite accounts as a means of extending the coverage of the data system without overburdening the Central System. Annexes illustrate the tableau economique d'ensemble, the intermediate accounts, satellite accounts, and accounts relating to such extensions as natural resources and the ecosystem.

Microbusiness accounting and macroeconomic accounting: the limits to consistency*

Abstract: The paper is concerned with analyzing the consistency problem that arises when the macroenterprise sector of a nation's accounting system is put on a microdata foundation. This foundation is composed of sets of microbusiness accounts, after some appropriate rearrangements and reclassifications. We pose the question: can the macroenterprise sector accounts be regarded as a consolidation of (observed) microbusiness accounts? The answer is positive from a purely conceptual viewpoint, but negative from a statistical viewpoint which preserves the decision-making records of microbusiness units. The latter phenomenon is referred to as the limits to (statistical) consistency while attempting to maintain the viability of a national accounting system. The analysis proceeds by exploiting the structural properties of market transactions matrices for a nation's economy. The results are sufficiently general to encompass the case where the transaction matrices are initially characterized by both sectoral discrepancies and transaction flow category discrepancies. In this general context it is shown that the statistical inconsistency potentially resulting from the replacement of the macroenterprise sector by an aggregation of microbusiness units has certain properties with economic meaning. This leads to a discussion that explains the ultimate rationale of statistical inconsistency: the fact that different microeconomic decision units may have different views and knowledge of common market transactions. The paper concludes with some implications for future research that appear to follow from the historical development of the subject matter.

Short-cut estimates of real income

Abstract: The United Nations International Comparisons Project (ICP) has conducted in-depth purchasing-power parity (PPP) studies of the so-called “benchmark” countries (of which there were 34 in the 1975 sample). In the absence of PPP studies of the rest of the countries in the world, the ICP team has constructed “short-cut” estimates of real income (that is, income converted from domestic currency to dollars at PPP) for the nonbenchmark countries. The idea of a “short-cut” procedure for estimating real income is to run a regression of real income on nominal income (that is, income converted from domestic currency to dollars at a market exchange rate) and other variables among the benchmark countries and then to use this regression to estimate real income for the nonbenchmark countries. The most recent ICP short-cut estimates have been based on regressions of real income on nominal income and the foreign trade ratio. The present study expands the list of candidate variables that might be included in a short-cut regression. The list includes educational attainments, the share of minerals in GDP, the trade balance, the growth of the money supply, tourist receipts, and the share of nontradables in GDP. The theory underlying the inclusion of each of these variables is discussed. Regressions are run with various combinations of these variables and some short-cut estimates of real income for 76 market economies are presented.

Market transactions in the national accounts

Abstract: This paper explains the treatment of market and non-market transactions in the national accounts. Different possibilities of defining these two types of transactions are discussed, and it becomes evident that a strong restriction of national accounts to market transactions only cannot be seriously taken into consideration. On the other hand, a system of supplementary tables is proposed which shows the market and the non-market transactions as such. Examples of tables of this kind are presented for the Federal Republic of Germany.

The importance of asset income among the elderly

Abstract: This paper focuses on the income patterns among the elderly. The life cycle hypothesis suggests that income and assets will decline after retirement. Data from the 1980 U.S. decennial census confirms that total income declines for succeeding elderly cohorts. The census data, however, shows that income from assets for elderly cohorts increases until the cohort aged 85 years and older. This pattern is similar for different sex-marital groups. Recent research that has addressed the issue of savings among the elderly is summarized and four possible explanations for the increase in income from assets found in the decennial census are discussed. We conclude by suggesting the implications of this data for the life cycle theory and public policy.

Health care accounts—a conceptual framework and an illustrative example*

Abstract: Canadian statistics of the health care delivery system are generated under a variety of concepts, methodologies, definitions, and classifications by the numerous individual units, institutions, and organizations involved. This paper presents an overview and a framework for satellite accounts on health care delivery. Its objective is to enable the organization of economic and financial information on health care delivery activities from different sources into a set of consistent statistics detailing current expenditures, current revenues, purposes of spending, and source and application of funds in the health care delivery system. It is recognized that this economic framework is only a first stage in establishing a complete health information framework which could link economic with social and demographic data. A sample set of accounts for the province of Ontario in the fiscal year 1977-78 is presented to demonstrate the feasibility of establishing such satellite accounts.

Further thoughts on the banking imputation in the national accounts

Abstract: The banking problem in the National Accounts arises because interest rates paid by banks on deposits are generally lower than the rates charged for loans and service charges levied by banks are generally less than the cost of the banking services provided. This paper offers two explanations for such observations: first there is the new neo-classical theory of private banking and central banking which suggests that they arise because of distorting “taxes” levied by regulating central banks. Second there is the Keynesian theory which accounts for the observations by the fact that the public good services of monetary stabilization supplied directly by the central banks and indirectly by private banks cannot be priced. Both theories account for the empirical observations giving rise to the banking problem. Neither theory lends support to the banking imputation currently carried out in most National Accounts.

Development of an algorithm for the compilation of national accounts and related systems of statistics

Abstract: The present article includes a proposal for a national accounts algorithm to be applied in the computerization of the national accounts compilation process. While aiming at the estimation and reconciliation of data from different statistical sources, it is based on the application of a linear programming technique applied to a system of identities and inequalities that define the accounting and analytical relations between the data categories of a national accounting framework. The technique is flexible in the sense that it can be used with any configuration of available statistical sources and data requirements of the national accounts. The algorithm is illustrated graphically with help of a simple example and thereafter applied to an extended but still simple national accounting scheme for Suriname with data for 1965 that was compiled by the author many years ago. As the present study is only a first step in the development of the algorithm, more work is needed to make it operational and the last section of the article includes suggestions about the direction of that further work.

Decomposing theil's index of income inequality: a reply

Abstract: In a reply to Cowell's criticism of our note \"Decomposing Theil's Index of Income Inequality into Between and Within Components\" (Adelman and Levy, 1984), we would like to reemphasize that the purpose of our note was to show that the decomposition of Theil's index of income inequality into between and within components is misleading in the sense that it does not provide the partial contribution of each factor (schooling, ethnicity, and nativity in our example) to total inequality in an unnested manner. Therefore, this decomposition cannot tell us which factor is more dominant in determining the level of income inequality. Regarding our assertion that total inequality varies with the order of decomposition, we are now convinced that we were in error. Using the formula

The treatment of interest and financial intermediaries in the national accounts of australia

Abstract: This paper is divided into two main sections. The first part summarises briefly the main points which have arisen in the lengthy debate over the treatment of banking intermediaries in the national accounts. The discussion emphasises the method adopted in the early Australian accounts when banks were treated in the same way as the general government. It is argued that this method is simpler and provides a more realistic account of the functions of banks than the current SNA proposal. The second part of the paper examines the functions of banks in Australia. It uses data of interest and administration cost for separate banking institutions to examine the incidence of bank costs. It is concluded that the costs do not fall on borrowers or lenders but are a charge in providing a communal service in the establishment and maintenance of the financial system.

Statistical units standards and central register systems: keys to the development of economic accounting

Abstract: National accountants, model builders and analysts who work with statistical material that has been compiled without the discipline of well-developed unit standards rules and central register controls may be constructing information systems that are basically unsound because of the uncertain nature of their building bricks of economic units. This paper draws attention to the nature and importance of statistical unit standards and central register systems in the provision of economic statistics for economic accounting, planning and management. These are viewed as essential conceptual and operational tools for compiling economic statistics on an integrated basis and for making progress towards establishing a comprehensive data base with positive links between macro economic analysis and data about individual economic agents. Some of the problems and possibilities for countries who wish to proceed along these lines are discussed, with particular reference to the experience of Australia.

Evaluating the distribution of public expenditure

Abstract: This article evaluates the distribution of public expenditure on subsidized goods and services over income categories. It is argued that undifferentiated application of usual measures of dispersion must be rejected when judging the distribution of these expenditures, because there are hardly any subsidized goods and services for which the government aims at equal consumption. Such an application requires a normative distribution of expenditure. The normative distribution of expenditure is derived from a normative distribution of consumption and the distribution of normative charges. Central elements are needs of consumers and their financial capacity. The normative distribution of consumption is based on government intentions with respect to the goods and services under consideration.

The concept of macroeconomic cost and its utility

Abstract: The proposed “Variable Domestic Cost” includes all net payments by sectors belonging to the productive system (enterprises, credit institutions and government) to all other sectors (households, private non-profit organizations and the rest of the world). Compared with the rate of growth of demand, represented by Gross Domestic Marketable Product at current prices, the rate of growth of VDC per unit produced forms the “profitability function of the nation.” Profitability is positively related to the rate of economic growth and to the price/cost relation. A relative deceleration of unit VDC stimulates economic growth, which enlarges the positive difference between price and cost, and that, in turn, accelerates economic growth. Inversely, a relative acceleration of unit VDC brakes economic growth, while a slowdown in production raises unit costs and depresses prices. The resulting fall in profitability stops economic growth. The main explanatory variables of demand are World trade, monetary and fiscal policy and import prices. The main components of VDC are enterprises' wage costs, social benefits minus social contributions and the government wage bill minus direct taxes payable by households. The fact that in West Germany all these unit costs were increasing more slowly than in France explains why Geman economic growth, much slower than French before 1975, outpaced it after that year, achieving a lower rate of inflation, a larger positive balance of trade and a higher appreciation of the national currency. The concept of VDC is a useful contribution to the theories of inflation and of economic fluctuations and provides a possible explanation of structural unemployment. Maintaining VDC at a lowest possible level should be considered a major object of economic policy.

Financial operations and monetary statistics: improved concordance in the french national accounts

Abstract: National accounts are a powerful means of coordinating different statistical systems The better their classifications are adapted to the basic statistics or the information blocks one wishes to use, the better the national accounts play their part This statement explains why, taking the opportunity of revising the whole system, French national accountants tried to improve the concordance between financial operation tables and monetary statistics Other reasons leading to this attempt can be found in the dissatisfaction of users having to face different and inconsistent financial information such as the monetary statistics on one hand and the financial aggregates of the national accounts on the other; and even more reasons appear in the organizational field since those two statistical systems are issued by two neighbour services of the Banque de France, often depending on the same sources Further, many propitious factors are converging at the same time: the French financial system is undergoing profound transformations originating as much in the behaviour of economic agents as in the law, and the statistical operations have to adapt to these changes The national accounts will in the near future include balance sheets in which financial asset holdings are directly comparable to the money supply aggregates In its first part our paper sets forth the detailed reasons for our attempts, the conditions in which it took place and the present results We have reached a much better degree of consistency between the two systems, even if the final scheme has not yet been adopted in either the monetary field or in the field of national accounts But an important question remains open about the durability of the harmonization: we think that it could be relatively uncertain because of the differences in the goals pursued by the two systems and the constraints which they face That is why in the second part of the paper we tried to review the way such a pragmatic undertaking as ours could call into question the way in which financial operations are described in the system of national accounts If one agrees with the present boundary between the real and the financial sphere, the articulation must remain somewhat elementary But if one wants to revise the usual so-called dichotomy between financial and non financial phenomena, we think that a complete rebuilding of the conceptual framework of the accounts has to be done; this would necessitate a considerable amount of theoretical and practical work