From GDP to adjusted net disposable income of households – a decomposition analysis

Working Party on National Accounts1-3 December 2010 Julien Dupont (STD)

- Background

- Description of the project

- First preliminary results

- Next steps

Overview

Report by the Commission for the Measurement of Economic Performance and Societal Progress (Stiglitz, Sen, Fitoussi 2009)

- GDP fares poorly as a measure of economic well-being

- An households perspective provides different and policy relevant information in addition to GDP

- From gross output to net output: the need to take into account depreciation (for welfare purposes, measures of net product are much preferred to measures of gross output even if measures of depreciation are imperfect)

Background

Comparison between growth in GDP volume and growth in HH real adjusted

net disposable income (2000-08)

• In a number of countries, real adjusted net disposable household income has grown quite differently from volume GDP

• This provide potentially misleading signals• Having a better understanding of the factors that

cause difference is essential• The project envisaged by the OECD tackles this issue

through a decomposition analysis of the differences between growth in GDP and in household disposable income

Growth in GDP and in HH adjusted net disposable income show different trends

Decomposition of the difference between GDP and HH real adjusted net disposable income

Whole economy SectorsGDP Gross Primary incomes

Consumption of fixed capital (depreciation)Net domestic income Net primary incomes

Balance of primary incomes across sectors and across borders

Net national income (NNI) Net disposable income (allocation of primary income)

Balance of current transfers

Net national disposable income (NNDI)

Net disposable income (secondary income distribution)

Balance of social contribution in kind delivered and benefits received by each sector

Adjusted net national disposable income (ANNDI)

Adjusted net disposable income by sector

Comparison between adjusted net disposable income and net

disposable income in Finland

• Factors driving the difference– Consumption of fixed capital – Distribution of primary incomes between sectors– Relative importance of HH as producing sector – Current transfers between HH and other sectors – Social transfers in kind provided by government

(health, education, housing services)– Relative price changes between consumer goods

and overall products

Decomposition of the difference between GDP and HH real adjusted net disposable income

Comparison of price changes of private HH consumption and price changes in GDP, Finland

Comparison between price changes of private HH consumption and price changes in GDP, Norway

Over the period 1998-2008 in Finland, growth in GDP volume index equals 3.29% and growth in real adjusted net disposable income equals 3.23%.

Social transfers in kind and the relative importance of HH explain most of the difference with offsets from the distribution of primary incomes between sectors, current transfers between HH and other sectors and consumption of fixed capital.

First preliminary results, Finland

Over same period in Norway, growth in GDP volume index equals 2.2% and growth in real adjusted net disposable income equals 3.9%.

Relative price changes explain most of the differences, with the relative importance of HH and the effects of distribution of primary incomes.

First preliminary results, Norway

Work is on-going.

The plan is to compile a first set of estimates by the end of March 2011 and publish results by the end of 2011

Next steps

Thank you for your attentionComments are welcome

Julien.Dupont@oecd.org