NATIONAL ACCOUNTS AT CONSTANT PRICES

This article discusses the problem of compiling a balanced set of national accounts at constant prices. The method adopted is based on earlier work on this subject by Burge and Geary. Commodity flows, which are uniquely deflatable, are expressed at constant prices and savings in constant prices is obtained by preserving a balanced set of equations in real terms. The deflation of the external account is discussed.
A method is suggested for expressing the national income account in real terms and an "income gain" is deduced for each industrial sector which represents the difference between real income and real product in that sector. The sum of the income gains for the domestic sectors is zero.
The constituents of the income/expenditure accounts of households, corporations and general government are expressed at constant prices by selecting suitable deflators in a consistent manner. The accounts in real terms are now unbalanced and are balanced again by inserting a balancing item which is shown to represent a gain to the sector arising from changes in the terms of trade between the sectors. This item is called an "expenditure gain". The sum of the expenditure gains for the institutional sectors is zero.
The system suggested can be extended to cover additional items in the accounts and thus a complete set of national accounts in real terms can be derived.     

TREATMENT OF SUBSIDIES IN NATIONAL ACCOUNTS*

This document contains a critical analysis of some aspects of the treatment of subsidies in the present system of national accounts (United Nations SNA and the ESA, i.e. the European System of Integrated Economic Accounts) as background to the current discussion of their revision. One of the conventions used is that subsidies are recorded as a resource in the accounts of the market producer units which actually receive them. Should this rule of the receiver be applied in every case? The paper suggests that it would be preferable to attribute subsidies to the beneficiary in those cases where a subsidy received by one unit is the counterpart of a reduction in price which he grants to another unit which buys something from him (and which is the real beneficiary), so long as the discount is only granted to specific categories of purchasers. Recording in the accounts of the beneficiary results in a better distribution in the branch accounts and moreover greater stability of the national accounts in the face of minor institutional changes. The problem of allocation arises also for transfers designed to cover social risks or needs (illness, invalidism, old age, maternity). For this category of “social” goods and services for which general government wholly or partially assumes the costs to households, the transfer is treated either as a subsidy to collective consumption or a social benefit. The institutional arrangements, which vary from country to country, product to product and over time, give rise to profoundly different recording in the accounts. In order to restrict these differences, improve comparability between countries, permit analysis of trends over time, make the accounts less sensitive to different institutional arrangements and obtain a figure for household consumption which does not depend on the particular way in which the costs of such consumption is borne, the present document suggests that consumption subsidies should be treated as individual consumption expenditure of general government.     

A BALANCED SYSTEM OF NATIONAL ACCOUNTS FOR THE UNITED KINGDOM

This paper describes the construction of a disaggregated system of 262 national accounts for the U.K. economy in 1975. The objective is to remove the discrepancies between income, expenditure, production and financial estimates which occur in practice. This is done with the aid of a generalized least squares algorithm for adjusting national accounts with subjective estimates of reliability of the various account items. The balanced system of accounts provides the cross-section data base needed for the estimation of a consistent multisectoral dynamic model of the U.K. economy and yields the classification converters and input-output tables necessary for such a model.     

THE UNITED NATIONS SYSTEM OF NATIONAL ACCOUNTS IN THE MIDDLE EAST

After an introduction setting out the general state of work on the national accounts in the Middle East the author considers the principal uses of national accounts statistics in less developed countries. The first group of uses discussed is in connexion with the measurement of growth and the making of international comparisons. The author is of the opinion that in many cases the primary statistical series are so weak that the fact they they are combined together into a series called national income or gross domestic product lends to them a significance which they do not really possess. The real problem is to improve the quality of the primary series. A second use of national accounts statistics is in connexion with fiscal and budgetary policy. In the statistically advanced countries this is one of the most important uses but in the less developed countries budgetary policy has not yet reached a level of sophistication which would call for the use of national accounts data. Moreover, the time factor involved in assembling accurate national accounts estimates militates against their effective use for short term forecasting. The author considers that the most important use for national accounts statistics is to provide a framework for development planning. The United Nations system is not altogether appropriate for this purpose. It grew up primarily as a system for recording income flows but in development planning one is concerned equally with commodity flows with a great deal of attention being focussed upon intermediate products. The proposals of the working group of African Statisticians for an adaptation of the S.N.A. to African countries represents a most important advance in this respect. In the final section of the paper the author advocates a broader definition of capital formation to include developmental expenditure which is not properly defined as fixed capital formation. Education expenditure is cited as an example. It is suggested that in the national accounts it would be desirable to operate with gross concepts. However, the growth of the capital stock is obviously important in less developed countries and it is suggested that statistical techniques be devised to measure it directly wherever possible. Finally, attention is drawn to the ambiguities and weaknesses in the concept of residence as used at present in the S.N.A.     

NATIONAL ACCOUNTS ESTIMATION USING INDICATOR RATIOS

We propose a new approach to national accounts compilation, which also serves as a formalization of current compilation practices. When formalizing the procedure, a distinction is made between (basic) data, national accounts identities and so-called indicator ratios. The latter are ratios of or percentage relations between national accounts variables, such as the relation between output and value added. Indicator ratios are currently used in national accounts compilation practices in order to make adjustments to the basic data or to fill in missing data. The latter use is particularly relevant when basic data are scarce, which is the case not only in many developing countries, but also in developed countries when annual accounts are compiled for recent periods. The (basic) data, indicator ratios and identities together are used in a Bayesian approach to estimate the values of national accounts variables and analytical indicator ratios based thereon. The amendment of the current practices consists in introducing reliability intervals of basic data and indicator ratios, which allows for the use of a much larger number of indicator ratios in the compilation and checking of national accounts data. The Bayesian compilation approach makes it possible–in contrast to current practices–to use indicator ratios both as priors and as analytical indicators.     

COMMODITY BALANCES AND NATIONAL ACCOUNTS: A SAM PERSPECTIVE

This paper is concerned with the treatment of commodity and activity balances in a national accounts context. It makes use of a general method for reducing the size of a social accounting matrix (SAM) by apportioning the elements of one or more accounts to the rest. The national accounts are looked at in terms of their usefulness for policy analysis, not least analysis of the impact of price changes. The SNA convention of separately distinguishing activities and commodities is endorsed. However, in contrast to the SNA, it is argued that for analytic purposes commodity transactions should be recorded at market prices, with a separate account for each of the markets for a given commodity in which a distinct price prevails. The SNA SAM is shown to be a reduced form of the SAM resulting from this recommended treatment of commodity transactions, while a further round of reductions (apportionments) yields SAMs which are familiar from input-output analysis, in which activities and commodities are not separately distinguished. It is argued that no special effort would be required to produce SAMs in which commodity balances are recorded at market prices as recommended here (the necessary data are also required to produce the conventional SNA tableaux), and that all reduced form versions of such SAMs, including the SNA, are inferior as a basis for the analysis of price effects on the structure of production.     

SOCIAL ACCOUNTS AND THE DISTRIBUTION OF INCOME: THE MALAYSIAN ECONOMY IN 1970

Although the functional and institutional distributions of income are integrally connected to individual living standards and other development policy objectives, these dimensions are rarely given prominence or even accommodated within standard national accounting frameworks. This paper summarizes research on the estimation of a social accounting matrix (SAM) for Malaysia for 1970 in which the distribution of income between different factors and socio-economic groups is identified. It is the latest of a series of case studies involving some of the authors and is, perhaps, the most detailed of its kind. The study departs from the United Nations SNA guidelines at various points. The SNA basically proposes a commodity balance approach to national income accounting. In giving equal emphasis to income/outlay accounts as to the production accounts, the present study has brought together data from two major primary sources: a household expenditure survey and a production survey. Their combination poses several problems which are discussed in the paper. It leads to an integrated picture, in matrix form, of the interrelationships between income distribution and production structure in the Malaysian economy. Both the factor and household accounts in our SAM are disaggregated according to race and the geographic distinction between Peninsular and East Malaysia, with an urban/rural split within Peninsula Malaysia. The Peninsula labor force is further disaggregated by education level, while its households are then subdivided according to the employment status of main income earners. Arguments for and against these choices are presented. Some other aspects of the study can be noted. First, the distinction drawn between East and Peninsular Malaysia is desirable not only because of the inherent interest of the regions but also because of large differences in data availability and hence in estimation methods. Secondly, to complete our SAM it was necessary to estimate inter-household transfers, being the institutional analogue of inter-industry commodity flow. And finally an attempt has been made to impute the labor component of unincorporated business income. These, then, are the major problems which had to be overcome in our attempt to quantify the generation, distribution, and redistribution of income within Malaysia in a SAM framework.     

POLLUTION AND POLLUTION ABATEMENT IN THE NATIONAL ACCOUNTS

Building on the approach of Weitzman, as extended by Hartwick and Mäler, five models of national accounts in a dynamic competitive economy with pollution externalities are constructed: flow pollutants, stock pollutants, fossil fuels and CO₂, living resources and acid rain, and household defensive expenditures. The results measure welfare rather than national product per se . The general conclusions are that abatement expenditures should be treated as intermediate consumption, that adjustments need to be made for both pollution emissions and natural pollution dissipation processes, that marginal social costs should be used to value emissions, and that the level of environmental services must be valued in measuring welfare. Not only should household defensive expenditures not be subtracted from the welfare measure, under plausible assumptions the adjustment to welfare (as opposed to NNP) includes a value greater than the level of household defensive expenditure.     

THE ACCOUNTS AND THE COMPUTER

(1) The primary contribution from the computer's application to the national accounts may well be to erode the line between micro and macro analysis. Key macro totals in the accounts sum individual company reports. The computer permits us to develop distributions of these reports. Such distributions, regularly presented, would permit discovery of the first forerunners of change, would help distinguish, e.g., widespread strength in an export drive or a profits surge, from participation by a few major concerns that dominate the aggregate.
(2) The strikingly different parameters in cross section and time series studies (e.g., price elasticity of housing) will in some measure reflect incomparability between the micro data that enter into each. The computer makes possible the use of the wide array of micro data that really underly the accounts to develop consistent analyses of time series (of both aggregates and distributions) and cross section analyses.
(3) The inconsistencies now imbedded in the accounts but gilded over by the abilities of the estimators are well-known. Discussions of wage price policy rest on data for wages that have no necessary compatibility with data on profits, etc. But since 1,500 corporations account for at least half of U.S. net income, sales, and investment, the computer can test the consistency of reports made by different units in these firms to different agencies—a process totally out of the question before the computer.
(4) The potential that the computer offers for prompt revisions in the accounts; for revisions by systematic rule; for tests of sensitivity of the entire set of accounts to particular tailor-made adjustments, is clear.
(5) Company purchase orders and accounts are increasingly recorded on cards or tapes. From these we may derive input-output detail and process detail that are light years better than those now feasible from intermittent survey aggregates.     

PERCEPTIONS, PROBLEMS AND METHODS OF PREPARING LABOUR FORCE ACCOUNTS IN INDIA

The paper concerns the links between labour force accounts and national accounts. It first discusses the variation in the perception of labour force among countries which results in much disparity in recorded participation rates. This obviously makes international comparison difficult. Since benchmark labour force information is often tied to population censuses which are infrequent and vary in concepts and approaches, even comparisons within a country over time are difficult. Finally a discussion of the use of labour force data to estimate the unrecorded economy is followed by suggestions on the direction for future work.     

THE ROLE OF MICRODATA IN THE NATIONAL ECONOMIC AND SOCIAL ACCOUNTS*

Microdata sets—samples of data relating to individual reporting units—can provide a valuable extension of the national economic accounts as they presently exist, making it possible to meet many of the criticisms being leveled at the accounts over their failure to include much nontransactions information that is essential to the evaluation of economic and social performance. To serve this purpose, however, the microdata sets must be integrated with the aggregate accounts, and with one another. A microdata sets relating to any given sector should add up (with appropriate weighting) to the economic constructs for that sector in the national accounts, and the microdata set for one sector should be articulated as appropriate with those of other sectors. This paper discusses techniques for constructing such microdata sets, including necessary adjustments of the macro accounts, techniques of alignment of microdata with the macro accounts and the creation and development of synthetic microdata sets. Synthetic matching and other techniques of merging data sets are discussed. The paper concludes with a consideration of the methodological implication of the integration of microdata and national accounts.     

RELIABILITY CRITERIA FOR NATIONAL ACCOUNTS

The reliability of national accounts is determined by the adequacy of a great variety of data sources and estimating methods. This inquiry focuses on major conceptual and methodological problems, and while it does not solve the reliability problem, it provides a framework for reliability analysis and suggests criteria for the evaluation of results; it also assists the producers of national accounts in determining the major trade-offs between different areas of possible data improvement.     

PRICES IN THE NATIONAL ACCOUNTS FRAMEWORK: A CASE FOR COST-BENEFIT ANALYSIS*

There are serious questions about the social costs and benefits of extending the role of prices in the national accounts. The costs may be greater, and the benefits smaller, than is commonly supposed. Many important uses of price (and other) data do not require that these data be organized within an elaborate—or even any—framework of national accounts. Also, the basic price (and other) data are still too often very scanty and rough. Would it not be better to devote available resources to improving these data rather than trying to force them, prematurely, into an elaborated set of national accounts?     

RESURRECTING THE U.K. HISTORIC SECTOR NATIONAL ACCOUNTS

The U.K. national accounts no longer provide a full set of sector income and expenditure data before 1987, a weakness that seriously impedes macroeconomic research. Using a strict accounting framework to combine the best quality official data taken from alternative sources, I show that a historic sector dataset can be resurrected, albeit at a high level of sector aggregation. Particular attention is paid to transfer incomes and associated inter-sector flows. Household saving and corporate retentions data are also derived. Benefits of the historic dataset are described and implications drawn for research and data management.     

REINVESTED EARNINGS IN THE NATIONAL ACCOUNTS

The paper raises three questions. Firstly, is it warranted that a significant part of primary (property) income is not shown in the national accounts as being distributed to the owners of the assets to which it accrues but ends up as capital gains in the revaluation account? Secondly, why has the SNA chosen not to record reinvested earnings of corporations as flows of property income with the exception of foreign direct investment, and thirdly why the asymmetrical recording of stock investments constituting more than 10 percent of equity capital depending on whether domestic or foreign transactions are concerned? Reinvested earnings on domestic equity investment above 10 percent of a corporation are not recorded as property income in the system. The paper looks at these three questions from the perspective of the analytical uses of national accounts. The consequences for the analysis of income distribution both between nations and within nations are examined.     

REGIONAL SOCIAL ACCOUNTS FOR THE UNITED KINGDOM1

Estimates of gross domestic product have been produced by various writers or agencies for Scotland, Wales, and Northern Ireland, and for Wales there are estimates of expenditure also; but only a very tentative attempt has hitherto been made at estimates for the English regions, mainly because the data present difficulties. In the present investigation, in which the estimates in the Bluebook on National Income and Expenditure are partitioned between regions, item by item, a production method was first explored, but this was replaced by use of Inland Revenue data on employment and self-employment income, and production and miscellaneous sources on profits etc. Estimates of expenditure raise particular difficulties in regard to private capital formation and, for different reasons, some parts of public current expenditure. The estimates have been used to throw light on interregional variations in income produced per head and earnings per head, and their relation to activity rates and industrial structure. The flows of property income, and of public transfers of purchasing-power and benefits between regions are also explored, along with regional current balances and evidence bearing on differences in pressure of demand. Finally, the scope for the development of regional social accounting in the United Kingdom is discussed.     

THE HISTORY OF THE UNITED STATES NATIONAL INCOME AND PRODUCT ACCOUNTS: THE DEVELOPMENT OF AN ANALYTICAL TOOL*

The purpose of this article is to record the history of the national income and product accounts of the United States, concentrating on the period 1932–47. During that period the single national income aggregate evolved into a set of accounts and the estimates emerged as an important analytical tool. Interviews with participants in these developments were extensively utilized to trace the events, people, ideas, and other factors which shaped the history of the accounts. The generally recognized need for economic information during the Great Depression stimulated the request that the Department of Commerce undertake what became the first official continuing series on national income in the United States. These estimates were prepared with the cooperation of the National Bureau of Economic Research and were published in 1934. By the late 1930's, estimates were extended to include income by state and a monthly series. World War II was the impetus for the development of product, or expenditure, estimates. By the mid-1940's, the estimates had evolved into a set of income and product accounts–a consolidated production account, sector income and outlay accounts, and a consolidated saving-investment account–designed to provide a bird's-eye-view of the economy. During this period uses of the accounts widened; analysis of wartime production goals and anti-inflation policy are noteworthy examples. The National Income, 1947 Edition was the culmination of a period of intensive conceptual discussion, extension of data sources, and improvement of estimating techniques. Thereafter the mainlines of development are more familiar, encompassing refinement and elaboration of the estimates and proliferation of uses.     

USE OF NATIONAL ACCOUNTS FOR A SHORT-TERM ECONOMETRIC MODEL: 1954–1966

A quarterly macro-econometric model of Japan's postwar economy has been constructed for the period 1954–1965 FY on the basis of standardized quarterly national income accounts. The model is designed for facilitating short-term economic forecasting and formulating adequate fiscal and monetary policy. Longer-term factors such as labor mobility, technical progress, etc., were also considered in the model.
The model consists of fifty-three equations related to most of the macroeconomic variables in both money and real terms, and the equations were estimated in principle by the limited information maximum likelihood method. Principal exogenous variables related to policy instruments are government expenditures including transfers, parameters of tax functions, interest rate, and prices and fares controlled by the government, etc. In formulating the model, non-linear specifications were used whenever found necessary.
Results of our testing on its predictive capability indicated fairly satisfactory performances for our observation period and also for 1966 FY. Multipliers related to fiscal and monetary policy were also obtained, indicating the dynamic characteristics of the Japanese economy, in particular, represented by dynamic business fixed investment, as compared with corresponding multipliers of the U.S. models.
Although the model is exploratory and to serve as a core for a more disaggregated "Master Model," the usefulness of the model for our purposes and the workability of our quarterly national accounts data for model-building have been recognized. The quarterly data, however, still remain to be improved especially in regard to consistency between income and expenditure and integration with flow-of-funds accounts.