Government and other non- market producers’ owned assets Carol S Carson Anne Harrison

The story so far.. AEG approves in principle including a return to capital on assets used in non- market production Several countries express reservations, some on principle, more on practical grounds This is a search for a compromise

Carol’s consultations Further clarification to clear misunderstandings Rate of return and justification for it Scope of assets to be included should give heavy weight to practical considerations

Conceptual and practical issues Net operating surplus? Increases output; Increases final consumption by same amount; Saving, financial account unaffected

Market and non-market producers Why do this for non-market producers and not for market? If capital services for non-market producers is standard, why is it supplementary for market producers? Capital services are included in operating surplus (hence of which suggestion)

Government and NPIs Does non-market mean non-profit? Market NPIs do include a profit and a return to capital in their operating surplus as indicated on the previous slide

Yet more imputations? Difference between imputing a transaction and imputing a value for a transaction. Taking output as the sum of costs is an imputation of value Includes consumption of fixed capital, employers’ social insurance contributions

No capital stock data How then to estimate consumption of fixed capital? If this is by a rule of thumb, change the thumb size slightly to convert this to capital services See below for range of assets covered

Rate of return Use the rate of return estimated endogenously for market producers? Not recommended because of volatility Rate on government bonds More stable not present rate but implicit rate on all bonds outstanding to average term structure and smooth effects of changes

Rate of return cont Should countries with very high rates on bonds have high capital services? Should use REAL rate of return in all cases to apply to nominal capital stocks values Even with high nominal rates, real rates are likely to be more comparable across countries

Example Asset worth 1000; rate of inflation 2% per month Mid year value 1126 Govt bonds 30%; inflation 27% (2% compounded) Return to capital 3% of 1126, 34.1 Compared to consumption of fixed capital of, modestly, 112?

Range of assets Used by civil servants eg computers, vehicles Benefits to whole economy; eg roads Benefits to community; eg city parks Land

Considerations Computers - yes Roads and infrastructure - ideally yes but to be as conservative as possible keep to cfc only City parks etc - data most likely to be unavailable, adopt convention no return and not even cfc

Land Land improvements will be treated as computers Land under buildings included with buildings treated as computers Open land - by convention do not include return to capital

Consequences Computers - would increase GDP Roads - would increase GDP City parks - would decrease GDP (conceptually) Open land - would decrease GDP (conceptually) Last two would increase comparability by compromising on perfection

Five questions -1 Should rate of return on assets used by non-market producers be taken to be the real rate of return of interest on all outstanding government bonds?

Five questions -2 Should a rate of return for all assets such as computers, vehicles and buildings used by the employees of non-market producers in their regular work be included in the measurement of the output of the non-market producer?

Five questions -3 Should a rate of return for assets such as roads and other infrastructure be included in the value of output of government?

Five questions -4 Should the SNA acknowledge that because data on such assets as city parks and historical monuments are often poor or non-existent, by convention no estimates of either cfc or a return to capital should be made for these assets?

Five questions -5 Similarly should the SNA recommend a return to capital in respect of land under buildings and structures be included in the measurement of output of NMP where such information is available separately from the buildings and structures involved, but as a convention neither estimates of return to capital nor of cfc should be made in respect of other land held by government?