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

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 2

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 3

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 4

Final Consumption Expenditure 5

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 6

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 7

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, 8

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 9

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 10

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) 11

Classification of Individual Consumption by Purpose(COICOP) 1.Food,and non alcoholic beverage 2.Alcoholic beverage, tobacco and narcotics 3.Clothing and footwear 4.Housing, water, electricity, gas and other fuels 5.Furnishing, household equipment and routine maintenance of house 12

Classification of Individual Consumption by Purpose (COICOP) (Contd.) 6.Health 7.Transport 8.Communication 9.Recreation and culture 10.Education 11.Restaurant and hotels 12.Miscelleneous goods and services 13

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 14

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. 15

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 16

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. 17

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 18

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 19

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 20

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 = = 50 21

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

What is Household Actual Final Consumption? (Contd.) 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 23

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 24

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 25

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

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..) 27

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 28

Classification of Function of Government(COFOG) 1.General public services 2.Defence 3.Public order and safety 4.Economic affairs 5.Environmental protection 29

Classification of Function of Government(COFOG) (Contd.) 6.Housing and community ammenities 7.Health 8.Recreation,culture and religion 9.Education 10.Social protection 30

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 31

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 32

Classification of the Purpose of the NPISH (COPNI) 1. Housing 2. Health 3. Recreation and culture 4. Education 5. Social protection 6. Religion 7. Political parties, labour and 8. Environmental protection 9. Services n.e.c. 33

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

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

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

5. Gross Domestic Capital Formation 37

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 38

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 39

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 40

Prices Used in Change in Inventory additionwithdrawal Finished productbasic basic Goods in progressbasic basic Goods for resale purchaserspurchasers Raw materialspurchasers purchasers Suppliespurchaserspurchasers 41

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 42

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

6. Export and Imports of Goods and Services 44

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 45

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 46

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 47

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) 48

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 49

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 50

Transactions of Goods and Services With Rest of the World Imports – Data on imports of goods and services are understated by smuggling, undervaluation, e-commerce, and under- recording of transactions, and payment outside the banking system. – Transactions of other services are difficult to measure, e,g communication, computer services ( such as development of software) and e- commerce 51

Transactions of Goods and Services With Rest of the World Some exclusion in transactions of goods and services with rest of the world – Transactions of non resident units in the economy with rest of the world – flows of sample product, goods for exhibition, goods for repair and for rent – Flows of goods of returning residents 52

Transactions of Goods and Services With Rest of the World Some exclusion in transactions of goods and services with rest of the world – Factor services ( labour, financial resources, etc) – Goods under operational leasing or for rent 53

Standard International Trade Classification(SITC) 0 - Food and live animals 1 - Beverages and tobacco 2 - Crude materials, inedible, except fuels 3 - Mineral fuels, lubricants and related materials 4 - Animal and vegetable oils, fats and waxes 5 - Chemicals and related products, n.e.s. 54

Standard International Trade Classification(SITC) 6 - Manufactured goods classified chiefly by material 7 - Machinery and transport equipment 8 - Miscellaneous manufactured articles 9 - Commodities and transactions not classified elsewhere in the SITC I - Gold, monetaryI II - Gold coin and current coinII 55