GDP by Type of Expenditure

1. GDP by Type of Expenditure A.C. Kulshreshtha UN Statistical Institute for Asia and the Pacific

2. Why GDP by Expenditure? • Show demand for goods and services • Stimulus to the economy • Use of supply of goods and services • Link to welfare and production capacity • Link with the rest of the world

3. GDP by Expenditure • Estimates based on the supply and use of goods and services • Estimate is at purchasers prices • Estimate is equal to GDP by economic activity at market or purchasers price

4. What Are the Type of Expenditure? • Final consumption expenditure • Households • General government • Non profit institutions serving households • Gross domestic capital formation • Fixed assets, produced and non produced • Inventory • Valuables • Net export • Export of goods and services • Import of goods and services

5. Final Consumption Expenditure

6. What Are Final Consumption Expenditure? • Expenditure on goods and services by consumer institutions • General government • Households • Non profit institutions serving households • Consumption expenditure on goods and services from supply of goods and services in the economy during the period

7. 1.Household Consumption Expenditure • Consumption expenditure of resident household in the economic territory • From domestic production • From imports of goods and services • Consumption expenditure of resident households in other economic territory • Import of goods and services

8. Household Consumption Expenditure? (Contd.) • Households final consumption expenditure • Goods and services acquired/used/ consumed for well being of the members • Food, clothing, housing, transport, education, health, personal needs, durables, other miscellaneous expenditure • Purchased, own produced, barter, gifts,

9. 1. Household Consumption Expenditure? (Contd.) • Consumption expenditure includes: • Purchases of goods and services • Own production of goods, housing services and domestic services of paid employees • Gifts received in kind • Consumption expenditure of members of institutional households • Durables for exclusive use of household or its members

10. Household Consumption Expenditure? (Contd.) • Consumption expenditure excludes: • Purchases for household operated activities • Expenditure of household on acquisition of house • Expenditure of household for gifts to other households • Expenditure of household for gifts to charities or other transfers

11. Household Consumption Expenditure? (Contd.) • Consumption expenditure is valued at purchasers price • Consumption expenditure is net of sale by household of second hand goods (clothing, household equipment, other goods previously purchased by households)

12. Classification of Individual Consumption by Purpose(COICOP) • Food,and non alcoholic beverage • Alcoholic beverage, tobacco and narcotics • Clothing and footwear • Housing, water, electricity, gas and other fuels • Furnishing, household equipment and routine maintenance of house

13. Classification of Individual Consumption by Purpose (COICOP) (Contd.) • Health • Transport • Communication • Recreation and culture • Education • Restaurant and hotels • Miscelleneous goods and services

14. How Household Consumption Expenditure is compiled? • Direct use of Sources of data • Household expenditure survey • Food Balance Sheet • Balance of Payments statistics • Retail trade survey • Commodity Flow Approach Availability of good/service – IC – GC –GFCF -Exports

15. What is Actual Final Consumption of Household? • The value of goods and services that the household consumed or used. • This includes: • Household consumption expenditure. • Social transfer in kind from general government and non profit institutions.

16. What is Social Transfer-in-kind? • The value of general government consumption expenditure which benefits individual household or its members • The total value of consumption expenditure of NPISH • This is a transfer of services or goods for which the general government and NPISH has recorded as part of their consumption expenditure

17. What is Social Transfer-in-kind?(Contd.) • The value of social transfer in kind is recorded as income in resource side of Redistribution of Income Account of household and as expenditure in Use of Adjusted Disposable Income of household.

18. What is Social Transfer-in-kind?(Contd.) • The social transfer in kind is recorded in the use side of the redistribution of income account and subtracted from the consumption expenditure of in the use of adjusted disposable income of general government and NPISH

19. What is Social Transfer-in-kind?(Contd.) • The expenditure of government and NPISH that are classified under social transfer in kind includes: • Health services • Education • Culture, religion,social security and welfare services • Housing and refuse collection • Also includes purchases of goods or services of government that is directly provided to households not included in GO of any of general government production activities

20. Example on How to Treat Social Transfer in Kind • Example:government spent 50 million on the state university. The record showed there was a revenue of 12 million from tuition, sale of books, and other services provided to the public. The treatment would be • Household consumption expenditure = 12 million • Government consumption expenditure= 50 – 12 = 38 million

21. Example on How to Treat Social Transfer in Kind (Contd.) • Example:government spent 50 million on the state university. The record showed there was a revenue of 12 million from tuition, sale of books, and other services provided to the public. The treatment would be • Government consumption expenditure for education is social transfer in kind • Social transfer in kind = 38 million • Household adjusted income + 38 million and household actual final consumption = 12+ 38 = 50

22. Use Household consumption expenditure Household saving Resources Disposable income Compensation Property income Current transfer What is Household Consumption Expenditure?

23. Use Actual household consumption Household consumption expenditure Individual consumption expenditure of government and NPISH ( Social transfer in kind) Household saving Resources Adjusted disposable income Household disposable income Government and NPISH social transfer in kind What is Household Actual Final Consumption? (Contd.)

24. 2. Government Consumption Expenditure • Gross value of output less sale of goods and services of the following economic activities of general government • Public administration • Education services • Health services • Other related services produced by general government

25. Coverage of Government Consumption Expenditure • Includes government purchases intended primarily as current transfer in kind, not used as intermediate input of production of services • Government purchased food to be distributed to the victims of flood • Government purchased blankets to be distributed to the homeless

26. Estimation of GCE • Government consumption expenditure GCE = GO- Sales GO = gross output of general government Sales = sales of goods and services of government services

27. Type of Government Consumption Expenditure • Government consumption expenditure is classified into: • Individual consumption expenditure -Expenditure whose recipient are individual persons or individual households(health services, education services, sports, social welfare) • Collective consumption expenditure - expenditure for general population-public goods- (public administration, police, etc..)

28. What Is General Government Consumption Expenditure? • Sources of Data • Government Finance Statistics • Statement of Revenue and Expenditure of national and local government • National Budget Statement • Budget documents (Demand for Grants) of Central Government (all Ministries), all State Governments and all Local bodies

29. Classification of Function of Government(COFOG) • General public services • Defence • Public order and safety • Economic affairs • Environmental protection

30. Classification of Function of Government(COFOG) (Contd.) • Housing and community ammenities • Health • Recreation,culture and religion • Education • Social protection

31. 3. What is Non-Profit Institutions Serving Households (NPISH) Consumption Expenditure? • The value of services of NPISH less the sale or receipt from goods and services • Expenditure is generally funded through donations, current transfers, property income and operating surplus of market establishment of NPISH • All expenditure of NPISH are taken as individual consumption expenditure and is social transfer in kind to households

32. 3. Consumption Expenditure of NPISH • Final consumption expenditure of NPISH equals output of NPISH less sale of goods and services • FCE = GO ( NPISH) – Sales • All Final consumption expenditure of NPISH is classified as individual consumption expenditure

33. Classification of the Purpose of the NPISH (COPNI) • Housing • Health • Recreation and culture • Education • Social protection • Religion • Political parties, labour and • Environmental protection • Services n.e.c.

34. 4. Actual Final Consumption • Actual final consumption of households = household final consumption expenditure + individual consumption expenditure of general government + individual consumption expenditure of NPISH

35. 4. Actual Final Consumption • Actual final consumption of general government = Government consumption expenditure - individual consumption expenditure of general government

36. 4. Actual Final Consumption • Actual final consumption of NPISH = NPISH consumption expenditure - individual consumption expenditure of of NPISH

37. 5. Gross Domestic Capital Formation

38. Gross domestic capital formation • Acquisition of non financial assets less disposal of new or existing tangible fixed assets • Acquisition of non financial assets less disposal of new or existing intangible fixed assets • Major improvement of tangible non produced assets • Cost of transfer of ownership of non produced assets

39. Some Issues to Consider • Capital assets are used repeatedly for production, including: animals, plants,etc.. • Treated as addition to inventory while growing • Treated as fixed assets once production starts • Death and reduction of productivity taken as CFC • Include produced assets acquired by purchases, barter, capital transfers and produced for own use

40. Some Issues to Consider • Only transfer cost of non produced assets are included in capital formation • Household durables for household operated activities and household own use should be allocated to GDCF and HCE

41. Prices Used in Change in Inventory addition withdrawal Finished product basic basic Goods in progress basic basic Goods for resale purchasers purchasers Raw materials purchasers purchasers Supplies purchasers purchasers

42. Estimation of Change in Inventory = value of addition – value of withdrawal – recurrent losses = (volume of closing inventory – volume of opening inventory) * average price during the period = value at closing inventory – value at opening inventory

43. Estimation of Capital Formation on Non Produced Assets • Improvement of non produced assets • Include transfer cost in change of ownership • Commission • Taxes • Other cost

44. 6. Export and Imports of Goods and Services

45. Transactions With Rest of the World • Goods and services (included in estimation of GDP by expenditure) • Incomes (flows of factor services: payment for resources of resident institutions used by rest of the world such as labour income, investment income and rent of natural resources) • Capital • Financial instruments

46. Transactions of Goods and Services With Rest of the World • Exports – flow of goods and services from resident units to non resident units • Imports – flow of goods and services from non resident units to resident units

47. Transactions of Goods and Services With Rest of the World • Transactions of goods classified using • Harmonized system ( developed by international Customs association for tax purposes) • System of International Trade classification ( SITC) • Recorded when transfer of ownership takes place, in practice when recorded in: • Customs ( crosses geographic boundary) • Purchases of non resident in economic territory

48. Transactions of Goods and Services With Rest of the World • Exports • Goods valued at f.o.b. free on board( excludes value of insurance and freight) during change of ownership or as the goods crosses the customs boundary • Trade in non factor services include provision of services to non residents • Merchandising of goods • Transport, insurance, hotels and restaurants, etc.. • Data on transaction of goods taken from customs manifest and institutions purchasing from local economy ( embassies and non resident institutions)

49. Transactions of Goods and Services With Rest of the World • Exports • Data on exports of services includes exports of non factor services and purchases of non resident from resident institutions • Data on export of services are taken from surveys or transactions from the banks, purchases of non resident in domestic territory are recorded as travel in BOP. • Exports could be understated by undervaluation, smuggling, misdeclaration, undercoverage and cross boarder trade and other unrecorded flows such as e-commerce in services

50. Transactions of Goods and Services With Rest of the World • Imports • Includes both imports of goods and non factor services • Goods are valued at CIF ( cost, insurance and freight) at customs boundary but national accounts compilation removes insurance and freight and transfer to services • Imports of goods purchased by resident during travel to rest of the world is recorded as services under travel