Territorial Adjustments in Government Transactions BEA Government Statistics Users Conference, Sep. 14, 2006 Benyam Tsehaye Economist, Federal Branch

2 Topics To Be Covered  Territorial adjustments  Aggregate economic measures  Definition of the United States  The conceptual problem  Proposed treatment  Project status and implementation

3 Territorial Adjustments  One type of adjustment made to source data in preparing NIPA measures is known as the “territorial or geographic adjustment”  Transactions between the economic agents in the U.S and the “territories”

4 Territorial Adjustments  “Territories” refer to -The U.S. Territories ∙U. S. Virgin Islands ∙Guam ∙American Samoa -The Commonwealth of Puerto Rico -The Commonwealth of Northern Mariana Islands

5 Territorial Adjustments This presentation is primarily about transactions between the U.S. Government and the territories.  Social insurance programs  Federal grant programs

6 Aggregate Economic Measures  National Income Product Accounts (NIPAs) -integrated set of economic accounts -show the composition of production and distribution of income earned in production - Examples: Gross Domestic Product (GDP), Gross Domestic Income (GDI), Personal Income and Personal Saving

7 Aggregate Economic Measures  GDP vs. GNP GDP is the featured measure of production in the U.S. -production by labor and property located in the U.S. -consistency with other key economic indicators -international comparability GNP measures production by labor and property supplied by U.S. residents in or outside the U.S.  Definition of the United States is needed

8 Definition of the United States  Source data used may employ different definitions  International Transaction Accounts (ITAs) and NIPAs.

9 Definition of the United States  International Transaction Accounts (ITAs) vs. NIPAs -ITAs emphasize customs and therefore view the U.S. territories as part of the U.S. -NIPAs, most source data traditionally cover the 50 States and the District, and view the U.S. territories as part of the rest of world  Coverage of the U.S. territories is not consistent

10 Conceptual Problem  In a system of integrated accounts, -sectors -double-entry accounting  It is imperative that boundaries, flows and their measurement be defined consistently in order to make the measures that are generated meaningful.  Hence a single definition of the economic boundary of the United States ought to be used.

11 Conceptual Problem  There are pros and cons to either definitions (ITA vs. NIPA)  However adjusting either definition would be a major project  Instead, this presentation deals with a narrower issue of consistently estimating NIPAs within current geographical scope

12 Conceptual problem  Social benefits received by residents of the territories ought to be excluded from NIPA personal income  One of the coverage adjustments used to achieve that is to exclude transactions with the territories from Federal source data  This leads to a slightly misleading picture of Federal government transactions and fiscal balances

13 Conceptual Problem  Social Security paid $493.1 billion to beneficiaries in 2004 (source: Social Security Administration): U.S. territories, $5.2 billion Foreign, $2.7 billion Domestic, $485.2 billion  In the NIPAs, -Gov. social benefits to persons ($485.2) -Government social benefits to the rest of the world ($2.7)  Payments to the territories ($5.2) are not counted

14 Proposed Treatment Recognize these transactions as flows between the U.S. Government and rest-of-the-world in the 2008 Comprehensive Revision of the NIPAs.  The “territories” will continue to be part of the “Rest-of- the-World” sector from the NIPA point of view.  The transactions between residents of the “territories” and the Federal Government will be recognized as Federal receipts and expenditures.

15 Proposed Treatment  Treatment will be in line with the current treatment of transactions between the private sector of the U.S. economy and the “territories.”

16 Progress Report  The research team: - Identified the main NIPA series and tables affected by implementation of the proposal -Identified sources to allocate territorial adjustments to transaction types—grants, social benefits, etc. -Will concentrate on refining historical data and examining implications to NIPA tables and series

17 Effect of Proposal If the proposal is implemented as presented today: NIPA table 3.2 (Federal Receipts and Expenditures) would be affected, mainly those series related to Social Insurance Programs

18 Effect of Proposal

19 Plan and Contact Information  The research team plans to incorporate the change in the upcoming comprehensive revision(2008) of the NIPAs.  Please forward comments and questions to Benyam Tsehaye Tel