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The System of National Accounts and Policy Development with a special focus on Fiscal Policy

This presentation explores the relationship between policy development, fiscal policy, and national accounts. It discusses the goal of policy development, the impact of policy on well-being, and the role of fiscal policy in stabilizing the economy. It also addresses the limitations of GDP as a measure of economic output and the need for timely and reliable data in fiscal decision-making. Other uses of national accounts and the importance of incorporating factors beyond GDP in policy development are also discussed.

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The System of National Accounts and Policy Development with a special focus on Fiscal Policy

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  1. The System of National Accounts and Policy Development with a special focus on Fiscal Policy November 17, 2008

  2. There are three key elements in the title of my presentation: Policy Development Fiscal Policy, and National Accounts I will first deal with them individually Specifically, the questions are: What is the goal of policy development? Where does fiscal policy fit in? What does this imply for the SNA? 2003-4 CSNA RP Toolkit Outline of Presentation Statistics Canada • Statistique Canada

  3. Improve the well-being of citizens To achieve this, the policy suite may include: fiscal policy monetary policy tax policy financial policy labour market policy environmental policy Each policy has a direct focus on its principal domain but there are secondary consequences on many other domains By necessity, many of the consequences of policy change, particularly the secondary ones, are understood and taken into account only qualitatively 2003-4 CSNA RP Toolkit Goal of Policy Development Statistics Canada • Statistique Canada

  4. Impact of Policy on Well-Being Well-Being W1 W2 W3 Economic Social Environmental Financial Measured Output Unmeasured Output Financial Policy Environment Other Labour Other Fiscal, Monetary, Tax, Transfers National Accounts (GDP) Statistics Canada • Statistique Canada

  5. GDP is not even a comprehensive measure of economic output National Accounts are used by policies other than fiscal There is dependence among economic policy levers e.g. inefficient use of financial policy may impose an additional burden on fiscal policy or other economic policies Fiscal policy only operates on measured output Key Observations Statistics Canada • Statistique Canada

  6. Fiscal Policy’s direct focus is economic stabilization OECD Economic Surveys involve assessment of a country’s fiscal stance and risks for the near to long term, including the complimentarity of fiscal and monetary policies The IMF web site has many references to debates about “rules-based fiscal policy” and the use of fiscal poilcy for short run stimuli Fiscal Policy’s Precise Role Statistics Canada • Statistique Canada

  7. The focus is on Change in GDP, rather than level The Change in GDP automatically affects: revenues expenditures budget balances debt levels The relationship between the change in GDP and changes in fiscal levers may lead a government to take proactive stance beyond automatic stabilizers Changes in fiscal policy affect GDP: largely through changes in demand in the short to medium term; and over the longer run, through changes in supply How Does Fiscal Policy Stabilize the Economy? Statistics Canada • Statistique Canada

  8. However, in taking appropriate decisions, fiscal policy further requires that: the output change data be available on a timely basis and that they are trustworthy, and not be revised qualitatively Revisions not only raise questions of whether policy was used appropriately or not they also can have a huge impact on fiscal variables in Canada, a 1 percentage point revision in GDP results in a $3 billion revision in the fiscal balance (the current surplus in 2008 is $2 billion) How Does Fiscal Policy Stabilize the Economy? Statistics Canada • Statistique Canada

  9. Beyond the focus of GDP Change, there is also interest on GDP level for other policy or policy instruments e.g. the Canadian equalization program productivity level determination and comparison This raises some interesting/important issues: Do technical improvements in GDP level measurement also affect estimation of GDP change? Do such improvements affect timing of National Accounts data releases? Do such improvements affect the degree of revisions to data? Other Uses of National Accounts Statistics Canada • Statistique Canada

  10. From a fiscal policy perspective, SNA revisions should focus on: the quality of quarterly change in GDP timing of quarterly releases need for data revisions Hence there’s a need to incorporate above factors in addition to appropriate level of GDP, as considerations for SNA revision Other components of well being are better captured and more useful outside the SNA framework Conclusion Statistics Canada • Statistique Canada

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