1. Copyright 2010, The World Bank Group. All Rights Reserved. Estimating informal production, part 2 1 Business statistics and registers

2. Copyright 2010, The World Bank Group. All Rights Reserved. N 4 Type N4 are registered legal persons not included in statistics There are various reasons:  Statistical business register is not up-to-date  Units are incorrectly classified  Units are below a certain threshold 2

3. Copyright 2010, The World Bank Group. All Rights Reserved. Legal persons not surveyed Legal persons not surveyed are of different types: a) the legal person is of a type that is systematically excluded from the business register b) the legal person should in principle be included in the business register but is not actually included c) the legal person is in the business register but not subject to survey because classification data are incorrect d) a part of the legal person is not subject to survey because profiling data concerning producing units are incorrect e) the legal person is in the business register with correct classification and profiling data but excluded from the survey frame 3

4. Copyright 2010, The World Bank Group. All Rights Reserved. N 5 Category N5 is registered entrepreneurs not included in statistics A registered entrepreneur may not be included in the statistics for many reasons Even if there is a regular flow of accurate and comprehensive information from the administrative source the registered entrepreneur may not be included in the business register An important category in many countries is output of agricultural products for own final use 4

5. Copyright 2010, The World Bank Group. All Rights Reserved. Registered entrepreneurs not surveyed Registered entrepreneurs may not be surveyed for different reasons: a) the NSO office does not conduct a survey of registered entrepreneurs b) the registered entrepreneur is not in the list of registered entrepreneurs available to the NSO c) the registered entrepreneur is in a list of registered entrepreneurs available to the NSO but is systematically excluded from any survey of entrepreneurs d) the entrepreneur is in principle in scope for a survey of entrepreneurs but in practice is excluded from the survey frame because classification data are incorrect 5

6. Copyright 2010, The World Bank Group. All Rights Reserved. N 6 N6 - Misreporting by the producer is common Misreporting means that gross output is under- reported and intermediate consumption is over- reported Misreporting often involves the maintenance of two sets of books; cash payments of salaries which are recorded as intermediate consumption; payments in cash without receipts; and VAT fraud 6

7. Copyright 2010, The World Bank Group. All Rights Reserved. Concealment Underground or concealed production is legal production which is kept hidden for public authorities The most important reasons are avoiding payment of taxes or the payment of social security contributions Other reasons can be the evasion of legal standards or statistical enquiries Some concealed production may be covered in the national accounts The borderline between non observed economy and illegal production is not always clear 7

8. Copyright 2010, The World Bank Group. All Rights Reserved. N 7 Type N7 ‘statistical deficiencies in the data’ can be sub-divided into: – N7a - data that is incomplete, not collected or not directly collectable – N7b - data that is incorrectly handled, processed or compiled by statisticians. Some statistical deficiencies are related to: o Handling of non-response o Production for own final use by market producers o Tips o Wages and salaries in kind Not all statistical deficiencies result in under-estimation of GDP 8

9. Copyright 2010, The World Bank Group. All Rights Reserved. Expenditure and income approaches The description of non-exhaustiveness has so far concentrated on the output approach to GDP Expenditure and income approaches can also be used With the exception of private household consumption and possibly exports and imports, other expenditure components may well have similar sources to those used for gross output and intermediate consumption This facilitates consistency in adjustments to the expenditure and output approaches 9

10. Copyright 2010, The World Bank Group. All Rights Reserved. Labor input method The labor input method is the principal verification method for compilation by the output approach The elements of the method are: - Estimate the labor input underlying GDP estimates - Estimate the labor input based on household survey data - Standardize the labor input estimates - Compare the two sets of estimates - Analyze any discrepancies taking into account the reliability of the different sources 10

11. Copyright 2010, The World Bank Group. All Rights Reserved. Other methods Confrontation and reconciliation methods are part of the general national accounts toolbox Non-observed activities will give rise to imbalances in the basic data Data imbalances may provide evidence of non- observed activities Comparisons may include: - Comparison of theoretical VAT and actual VAT - Comparison of theoretical income tax with actual income tax - Comparisons with norms, e.g. the ratio of intermediate consumption to gross output by activity 11

12. Copyright 2010, The World Bank Group. All Rights Reserved. Commodity flow method The commodity flow method involves balancing total supplies and total uses of individual products The equation used is: Output = the sum of all intermediate consumption, final consumption, changes (positive or negative) in inventories, gross fixed capital formation, acquisition less disposals of valuables, and exports minus imports A specific application of the commodity flow method is to derive the real output of retail trade from the supply of commodities 12

13. Copyright 2010, The World Bank Group. All Rights Reserved. Special surveys Special purpose surveys may be conducted by the NSO to assess the exhaustiveness of the national accounts Some methods used are: - Surveys of expenditure on goods and services from underground production - Surveys of labor input to underground production - Surveys of time use - Surveys of the informal sector and household production for own use 13

14. Copyright 2010, The World Bank Group. All Rights Reserved. Qualitative surveys Qualitative surveys of enterprises and of households can also provide information about non observed activities They have a number of advantages relative to quantitative surveys They are quicker and easy to answer They can be easily changed or supplemented to deal with new circumstances They can address questions regarding the causes as well as prevalence of non-observed activities. They can also provide guidance in assigning priorities for subsequent more precise quantitative assessment 14

15. Copyright 2010, The World Bank Group. All Rights Reserved. Use of fiscal data Income tax and VAT files are important sources of data for confrontation Tax audit data also have a part to play However, there are limitations Nevertheless tax audit samples can provide useful information on some types of non-observed activities The output estimates for certain professional business services such as accounting and legal services, and for personal services are made on the basis of average income per practitioner obtained from tax records 15