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Lesson-IV-1: Printable
Lesson: IV
Part -1
Economic Flows and Stocks
An Introduction to System of National
Accounts - Basic Concepts
Fourth e-Learning Course on the 2008 System of National Accounts
October – December 2013
Content
•
Stocks and Flow
•
Transactions
•
Taxes and Subsidies
•
Production and Production Boundary
•
Valuation of Transactions
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Stocks and Flows
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Stocks and Flows
Economic Flows and Stocks
The SNA accounts consist of tables and balance sheets that
register (in monetary terms)
• the economic actions or events (flows) take place
– within a given a period of time
and
• the effect of these events on the stocks of (economic)
assets and liabilities at the beginning and end of that
period.
– stock of resources measured at a point in time
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Stocks and Flows
Economic Assets
Please recall our discussions in Lesson – I.
The SNA considers only the economic assets, i.e. those assets that
are
– subject to ownership rights and
– used in some kind of economic activity or as a store of value.
Excluded:
 Consumer durables and
 natural resources that are not owned.
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Stocks and Flows
Stocks in SNA
• Stocks are a position in, or holdings of economic assets:
– non-financial (produced or non-produced) assets
– financial assets and
– liabilities
at a point in time.
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Stocks and Flows
Stocks in SNA – financial assets
• Financial assets consist of all financial claims like that of
– the creditors (or lenders),
– holders of shares or other equity of corporations and
– monetary authorities holding gold bullion as a reserve asset.
• A (financial) liability is established when one unit (the debtor) is obliged,
under specific circumstances, to provide a payment or series of payments to
another unit (the creditor).
Note that liabilities can only be financial .
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Stocks and Flows
Economic Flows
An economic flow reflects
a) creation, transformation, exchange, transfer or
b) extinction or emergence of economic value or
c) change in composition or value of stock of economic
assets/liabilities.
• The flows in category (a) are called ‘transactions’;
• those in category (b) ‘volume change’ and
• those in category (c) are caused by ‘changes in level
and structure of prices’
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Stocks and Flows
Economic Flows - classification
Economic flows
transactions
exchange:
with counter part
receipts for
payments
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transfers:
without counter
part reciepts
other economic flows
due to change
in level and structure
of prices
other changes
in volume
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Stocks and Flows
Two Main classes of Economic Flows
• Transactions – interaction by mutual agreement in
involving goods and services of economic value
– between institutional units
 Two kinds:
a. With counterpart – exchange
b. Without counterpart – transfers
– within institutional unit operating in different capacities
• Other flows – change in value of assets and liabilities
without transaction caused by
– volume change
– level and structure of price
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Stocks and Flows
Links between Flows and Stocks
• All economic flows bring about changes in the stocks of assets
& liabilities.
• The SNA provides for recording aggregates of all the flows in
the accounts. The stocks are recorded in the balance sheets.
• The net effect of all the flows are reflected as changes between
the closing balance sheet and opening balance sheet.
Stock of assets and liabilities
(1 January 2008)
Economic flows:
Transactions
Other flows
(1 Jan - 31 December 2008)
Stock of assets and liabilities
(31 December 2008)
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Transactions
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Transactions
Transactions
Transactions are economic flows that are caused by actions of
institutional units. They could
• be monetary or non-monetary (like barter, government services for
public consumption and production for own use)
• relate to production, sales and purchase of goods & services,
financial instrument or other non-produced assets
• be distribution and redistribution of income (payment of taxes)
• be actual observable flows or be estimated for analytical purposes
• be within the same institutional unit (like production of goods for
self consumption)
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Transactions
Types of transactions
• Transaction in goods and services: Transactions in goods
and services or products. Two kinds: transactions in
 Produced goods and services or products [P codes]
 Non-produced assets [NP codes]
• Distributive transactions [D codes]: Two kinds:
 Distribution of income generated in production of
goods & services [D1 – D4 codes]
 Transfers [D5 – D9 codes]
• Transactions in financial assets and liabilities [F codes]
{not included in the present course}
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Transactions
Nature of Transactions
Transactions
current
productionrelated
output
IC
CFC
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OS / MI
primary
income
capital
others
production
(t-s)
exchange:
final
consumption
transfers:
income taxes
of money
in kind
exchange
capital
formation
non-produced
non-financial
others
capital
transfers
capital
taxes
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Transactions
Main Non-financial Transactions
• Production-related
– Output [P1]
– Intermediate consumption [P2]
– Consumption of fixed capital [P51c]
•
•
•
•
•
•
•
Compensation of employees [D1]
Taxes on production & imports [D2]
Subsidies [D3]
Property income [D4]
Current Taxes on income & wealth [D5]
Current transfers [D5 – D7]
Capital transfers [D9]
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Transactions
Main Non-financial Transactions (contd.)
• Final consumption expenditure [P3]
• Capital formation [P4]
– Fixed capital formation [P51]
– Change in inventory [P52]
– Acquisition less disposal of valuables [P53]
• Exports [P6]
• Imports [P7]
• Acquisition less disposal of non-produced assets [NP]
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A Question
Which of the following (more than one) are capital
transactions?
a) Payment of house rent
b) Purchase of a dwelling
c) Receipt of property income
d) Income from resale of capital goods
e) Purchase of precious stones
f) Receipt of a one-time grant from the government for
construction of a school building
g) Receipt of insurance claim for damages to property
h) Damages to property caused by natural calamity.
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Taxes and Subsidies
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Taxes and Subsidies
Taxes & Subsidies
• Taxes are compulsory, unrequited payments made
to government units by
– households
– enterprises and
– Other institutional units.
• Subsidies are current unrequited payments
– by the government to enterprises
– for production activities
– on the basis of level of production - quantities or values
of the goods or services produced/ sold/ imported.
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Taxes and Subsidies
Broad Categories of Taxes & Subsidies
• Production taxes & subsidies: payable (receivable) on
goods & services when they are produced, delivered, sold,
transferred or otherwise disposed of by their producers.
• Income & wealth taxes: taxes on incomes, profits and
capital gains (holding gains) like
–
–
personal income tax, corporate income tax, taxes on financial or
capital transactions etc.
These taxes are other than production tax.
• Capital taxes: irregularly levied taxes on the value of
assets held or acquired or transferred like
–
–
–
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inheritance taxes, or
death duties, and
gift taxes
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Taxes and Subsidies
Production Taxes & Subsidies
– Product taxes & subsidies: payable / receivable by the
enterprises per unit of goods & services produced
• like excise, sales tax, product subsidies and value added
tax (VAT).
– Other taxes and subsidies on production: All other taxes /
subsidies except those on products that the enterprises pay /
receive for engaging in production
• like payroll taxes / subsidies, taxes on land & building,
business licenses, pollution tax and pollution control
subsidies.
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Taxes and Subsidies
What is VAT?
Suppose the Government fixes a 10% rate of VAT on the value of
all goods and services sold in the market.
Thus for a product sold at ¥ 100, a VAT of ¥ 10 is supposed to be
paid to the government.
If the product requires IC (at purchasers price) of ¥ 66, then it
would include a VAT of ¥ 6.
Then the amount ¥ 6 is deducted from the VAT the producer of
the product.
Thus, deductible VAT = ¥ 6 and
non-deductible VAT = ¥ 4.
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Production
and
Production Boundary
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Production
Concept of Production
1993 / 2008 SNA:
• “ ... an activity in which an
enterprise uses inputs to
produce outputs.”
OR
• an economic activity that
– creates (produces) goods and /
or services
– from inputs of raw materials
and other intermediate
products,
– using (human) labour and
available productive resources
like machinery, buildings and
land.
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Production
Measures of Production
• Gross Value added (GVA):
GVA is a measure of the value created through production
• Gross Domestic Product (GDP): Can measured by three
approaches
– Expenditure Approach: Total final use of domestically
produced goods and services.
– Production Approach: An aggregated or net output
concept representing the final result of the production
activity of all resident production units
– Income Approach: Total gross income generated in the
domestic economy (or by resident production units)
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Production Boundary
Production Boundary – 2008 SNA
Includes :
 production of all individual or collective goods or services
that
– are supplied to other units or
– intended to be so supplied,
including the production of goods and services used up in
the process of producing such goods and services;
 Own-account production of all goods that are retained by
their producers for
– their own final consumption or
– gross capital formation – including R&D activities;
 Own-account production of housing services and domestic
services produced by employing paid domestic staff
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Production Boundary
Production Boundary (contd.)
Includes:
(a) Production of all goods whether produced for the market or
for own-use or consumption
(b) Production of services if all the three conditions are fulfilled
•
•
•
sold on the market
supplied to units other than producers
produced by paid labor
(c) Production of own-account housing services
Excludes:
a) Factors that affect quality of life
b) Various housework, social activities, cultural activities, and
voluntary services
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Production Boundary
Production Boundary – specific cases
Production boundary also includes:
•
•
•
•
•
•
•
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Types of goods or services that are not paid for separately at the
market at economical significant prices.
Production of government services and output of other nonprofit
institutions (other non-market output)
Banking services not explicitly charged for – like FISIM
Services of pension funds
Services by life and casualty insurance companies
Own account production of capital goods, including intellectual
property product
Production of other goods (but not services) for own final consumption
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Production Boundary
Production Boundary – more specific cases
Production boundary also includes:
•
•
•
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Imputed services of owner-occupied dwellings
Domestic and personal services produced by employing paid
domestic staff
Illegal and concealed production and the underground economy
are included
(Note, theft is not production)
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Production Boundary
Two questions
Fill in the gaps.
Question 1:
Other things remaining the same, when a bachelor marries his
lady cook, GDP ………….………. (increases / decreases /
remains the same)
Question 2:
Other things remaining the same, when a spinster living in a
rented dwelling marries the landlord, GDP ………………..
(increases / decreases / remains the same)
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Valuation of Transactions
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Valuation of Transactions
Valuation of Goods & Services
• The prices for a product paid by the users and producers
are usually very different.
• The factors causing the difference in prices are:
– Taxes & Subsidies and
– Trade and transport margins
• Resulting in different perception of prices for same
transactions.
• This leads to the problem of valuation of goods & services
under different transactions.
• The equality of the supply and use can hold only if they
are valued appropriately.
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Valuation of Transactions
Relationships - Prices
Purchasers’ price
Less
Equals
Less
Equals
gross trade and transport margins (and
taxes on consumers)
Producer's prices
taxes less subsidies on products
payable/receivable by their producers
Basic prices.
Note that all the prices exclude the deductible part of VAT.
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Valuation of Transactions
Relationships - Prices
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Valuation of Transactions
Prices of a loaf
Take the example of a loaf of bread.
• Consumers buy from the traders at 140.
• The traders purchase each loaf at 110 from the bakery.
• The bakery pays product tax of 10 to the government.
• In this example,
purchasers’ price of a loaf
=
140
trade & transport margin (TTM) =
30 [ = 140 – 110 ]
producer price of a loaf
=
110 [ = 140 – 30 ]
basic price of a loaf
=
100 [ = 110 – 10]
From the margin of 30 (=140 – 110), the traders pay production taxes (less
subsidies) to the government and transport charges to the transporters.
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Valuation of Transactions
Market Prices
Prices paid by consumers are different from what the
producers perceive as their receipts, because:
• the taxes on products that are passed on to government are
not receipts of the producers.
• trade and transport margins, which forms part of the traders
and transporters income.
Thus, in the SNA:
• use of products are recorded at purchasers’ prices,
• output of products are recorded at basic prices.
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Valuation of Transactions
GVA at basic price
An enterprise’s earnings from production is the GVA at basic prices
= Receipts from sale of its products
minus (all product taxes – all product subsidies)
minus payments made for purchase of inputs
= Gross value of output at basic prices (GVObp)
minus IC at purchasers prices (ICpurp)
GVA at basic prices, GVAbp = Obp - ICpurp
Which gets distributed as
CE + OS + MI + other production (t-s)
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Valuation of Transactions
GDP - at Market Prices
GDP – the measure of production – is valued at market
prices.
GDP at market prices is defined as (1993 / 2008 SNA),
GDPmp= ΣGVAbp + product (t-s) + (t-s) on imports
GDPmp represents the primary income generated from the
production undertaken within the domestic economy.
In the NAS publications, when only GDP is mentioned it is
for “GDP at market prices”.
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Thanks
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