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

Outline of Presentation 2003-4 CSNA RP Toolkit Outline of Presentation 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? Revision studies are in international and Statistics Canada’s data quality assessment frameworks. Usually preliminary estimates are revised a number of times and each round of revision is expected to improve the accuracy of the final estimates. Reliability of progressive vintages of the estimates would be expected to incrementally improved but this is not predictable in practice. A final estimate is deemed accurate if it is close to the true value of what’s being measured. Since the true value is never known, accuracy cannot be directly measured, especially for complex series like GDP which uses many source data. It is indirectly measure by assessing source data and methods. Estimates are considered 'final' when they have gone through the regular revision process over a number of normal updates as well as historical revisions. Preliminary (or intermediate) estimates are reliable if they closely approximate the final estimates. Reliability can therefore be directly assessed from revision characterisitcs (bias, dispersion, changes of revision patterns over time and so on). Revision studies aim to inform users of the reliability of the preliminary, or intermediate, estimates so they can use them with confidence. Statistics Canada • Statistique Canada 16/01/2019

Goal of Policy Development 2003-4 CSNA RP Toolkit Goal of Policy Development 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 Reasons for revisions include the following: Incorporation of more complete or otherwise better source data including those with more complete or otherwise better reporting and those more closely match the concepts, as well as replacement with source data of judgement or of values derived largely by statistical techniques. Routine recalculation, for example incorporating updated seasonal factors and updating of the base period. Improvements. Changes in statistical methods, concepts, definitions, and classifications Correction of errors in source data and computation Timing-wise, revisions of a statistical series can be made at various times after a first release and can be classified as follows: Current revisions are made shortly after the first release and affect the current weekly, monthly or quarterly data Annual revisions are made after data for all the months or quarters of a year become available Less frequent revisions, often four or years apart, are “historical” revisions (also called “comprehensive”, “major” or benchmark”) In general, current revisions are mostly associated with the incorporation of better source data, while annual revisions would additionally take in routine recalculations. Changes in concepts, sources and methods usually bring on “Historical” revisions. “Historical revisions are often carried back, or backcast, for a large number of reference periods. Revisions to correct errors have no predictable timing but would be rare as normally errors are not expected to occur. Statistics Canada • Statistique Canada 16/01/2019

Impact of Policy on Well-Being 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 16/01/2019

Statistics Canada • Statistique Canada Key Observations 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 Statistics Canada • Statistique Canada 16/01/2019

Fiscal Policy’s Precise Role 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 Statistics Canada • Statistique Canada 16/01/2019

How Does Fiscal Policy Stabilize the Economy? 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 Statistics Canada • Statistique Canada 16/01/2019

How Does Fiscal Policy Stabilize the Economy? 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) Statistics Canada • Statistique Canada 16/01/2019

Other Uses of National Accounts 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? Statistics Canada • Statistique Canada 16/01/2019

Statistics Canada • Statistique Canada Conclusion 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 Statistics Canada • Statistique Canada 16/01/2019