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

2. Outline of Presentation
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

3. Goal of Policy Development
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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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