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Enhancing National Accounts with Capital Services Measures

Learn about the importance of measuring capital services in national accounts and how it adds analytical value. Discover the wealth and production aspects of capital, volume calculation, user costs, and their impact on productivity measurement.

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Enhancing National Accounts with Capital Services Measures

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  1. Agenda item 2a Invited paper 4 UN-ECE/Eurostat/OECD Meeting on National AccountsApril 2008 Geneva Measuring Capital Services OECD

  2. Contents • Background • Basic idea: what are capital services? • Purpose of capital services measures

  3. Background • 2003: United Nations Statistical Commission (UNSC) calls for update of the 1993 System of National Accounts • Canberra II Group dealt with issues concerning the measurement of non-financial assets • This included also capital services measurement in the national accounts • Result: capital services are now recognised in the revised SNA but implementation is up to countries

  4. What are capital services? (1) • Anyonewhoisfamiliarwith the user costapproachtowardsowner-occupiedhousingalreadyknowswhat capital services are • But some more explanationmaybehelpful • There are two aspects to capital: • It is a storage of wealth (wealth aspect) • It has a role in the production of goods and services (production aspect)

  5. What are capital services? (2) • Wealth aspect • Captures the market value of capital goods valuation of the stock atmarketprices • The appropriate entry for balance sheets • Corresponds to the net capital stock in the SNA93 • Production aspect • Captures the flow of productive services from capital into production • The appropriate variable for productivitymeasurement • Requires a different stock measure – the productive stock

  6. What are capital services? (3) • Volume of capital services • Assumed to beproportional to the productive stock • Then, volume growth of productive stock = volume growth rate of capital services • Productive stock • Takesintoaccountefficiencyloss of olderasset an age-efficiency profile isapplied • Wealth stock • Takesintoaccount total value loss of olderasset an age-price profile isapplied

  7. What are capital services? (4) • Price of capital services =User costs per unit of productive stock • Main elements of user costs: • Real rate of return (r) • Rate of CFC (d) • Real holding gains/losses (left out in simplified approach)

  8. What are capital services? (5) • Total value of capital services • Price of K-services * Productive stock • Simplestform: (r+d)p*K • This corresponds to the user costapproachtowardsowneroccupiedhousing (ignoringintermediate inputs)

  9. Purpose of capital services measures (1) • Normally, no linkbetween value-added and capital, except for CFC as the measurethatbrings us from GOS to NOS • Capital services measuresestablish the linkbetween capital input and value-added: • Total value of capital services canbeequatedwith GOS (plus the capital part of mixed income)

  10. Purpose of capital services measures (2) • Consequence: the incomeside of the accountcanbe de-composedinto a price and into a volume component • Price component: wages and prices of capital services (=user costs) • Volume component: numbersemployed and volume of capital services • With volume measures for labour and capital, combinedmeasures of volume inputs canbecomputed • Volume output/volume input = MFP

  11. Capital measures in SNA93 Time series of GFCF by type of asset all expressed at same mid-year prices Retirement profile Net capital stock Balance sheets Age-price or depreciation profile Consumptionof fixed capital Net domesticproduct

  12. Integrated system of capital measures Time series of GFCF by type of asset all expressed at same mid-year prices rate of return Productive capital stock/capital services by asset Age-efficiency profile User costs of capital Total capital services Retirement profile Age-price profile Net capital stock Balance sheets Deprieciation profile Consumption of fixed capital Net domesticproduct

  13. The distinction between net capital and capital services matters empirically: example USA

  14. Conclusions • Capital services measuresaddsignificantanalytical value to national accounts – price/volume split of incomeside and productivitymeasurement • Capital services, net capital stock, CFC and GFCF shouldform a consistent and integrated set • Implementationrequires extra effort but much of the empiricalrequirements are alsoneeded for good qualitymeasures of CFC and net stocks

  15. More details… • Forthcoming chapter in revised SNA • OECD Capital Manual • Draft version on OECD website • Final version available by June 2008 • Contact: Paul.Schreyer@OECD.org

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