Copyright 2010, The World Bank Group. All Rights Reserved. Introduction to the SNA, advanced Lesson 4 Household accounts 1

Copyright 2010, The World Bank Group. All Rights Reserved. Background The 2008 SNA defines a household as a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, particularly housing and food A household is not established to produce goods and/or services, which is the function of units in other institutional sectors. However, neither does it preclude households from engaging in production (as unincorporated enterprises) In practice, the accounts of the household sector cover both the production of goods and services by unincorporated enterprises and the uses of income arising from this production and from other sources 2

Copyright 2010, The World Bank Group. All Rights Reserved. Institutional households The majority of persons live in individual households but persons living in an institution are classified as part of the household sector even if they have no (or only a little) independence in economic matters – those living in such institutions must be staying there long term – persons serving a short prison sentence or who are temporarily in hospital remain part of their normal household The definition of residence is based on the location of the household rather than the country in which a person works 3

Copyright 2010, The World Bank Group. All Rights Reserved. Unincorporated enterprises Unincorporated enterprises are an important component of the household sector in most countries The 2008 SNA defines unincorporated enterprises in terms of what they are not: An unincorporated enterprise represents the production activity of a government unit, NPISH or household that cannot be treated as the production activity of a quasi-corporation 4

Copyright 2010, The World Bank Group. All Rights Reserved. Unincorporated enterprises To understand this definition it is necessary to know what a quasi-corporation is The SNA defines a resident quasi-corporation as an unincorporated enterprise owned by a resident institutional unit that has sufficient information to compile a complete set of accounts and is operated as if it were a separate corporation and whose de facto relationship to its owner is that of a corporation to its shareholders 5

Copyright 2010, The World Bank Group. All Rights Reserved. Household final consumption expenditure(HFCE) The 2008 SNA defines HFCE as the expenditure, including expenditure whose value must be estimated indirectly, incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant and including consumption goods and services acquired abroad 6

Copyright 2010, The World Bank Group. All Rights Reserved. Household final consumption expenditure (HFCE) HFCE is almost always the largest single component of expenditure on GDP – it typically contributes 60% or more of GDP and can be up to 90% in some special cases The composition of HFCE and GDP can vary quite markedly from one country to another as can the relationship between them 7

Copyright 2010, The World Bank Group. All Rights Reserved. Classifications Households can be considered from two perspectives, either as producers or as consumers Classifying households depends on which perspective the analyst is interested in examining – households can be classified on the basis of the type of household making the expenditure – household expenditure can be classified according to the type of expenditure The type of household classification is based on the major income source for the household as a whole The classification used for household expenditure is the Classification of individual consumption by purpose (COICOP) 8

Copyright 2010, The World Bank Group. All Rights Reserved. Classifications – household sector The SNA identifies four sub-sectors of the household sector, based on the predominant type of income received by the household as a whole The sub-sectors are: o Employers o Own account workers o Employees o Recipients of property and transfer income – Recipients of property income – Recipients of pensions – Recipients of other transfers 9

Copyright 2010, The World Bank Group. All Rights Reserved. Classifications – COICOP The COICOP has 14 top level categories: 1.Food and non-alcoholic beverages 2.Alcoholic beverages, tobacco and narcotics 3.Clothing and footwear 4.Housing, water, electricity, gas and other fuels 5.Furnishings, household equipment and routine household maintenance 6.Health 7.Transport 8.Communication 9.Recreation and culture 10.Education 11.Restaurants and hotels 12.Miscellaneous goods and services 13.Individual consumption expenditure of NPISHs 14.Individual consumption expenditure of general government 10

Copyright 2010, The World Bank Group. All Rights Reserved. Household sector accounts The accounts for the household sector tend to be of significant interest to analysts – the details of most interest are the sources of households’ income, the taxes and social contributions they pay out, the amounts they spend on consumption (i.e. HFCE) and their saving (the amount left over from household disposable income after expenditure on consumption) 11

Copyright 2010, The World Bank Group. All Rights Reserved. Household sector accounts The major sources of household income are mixed income from unincorporated enterprises, compensation of employees from their employment as wage and salary earners, property income (interest, dividends etc), remittances from family members abroad and social benefits The major expenses incurred by households that reduce their disposable income are taxes on income and wealth and social contributions 12

Copyright 2010, The World Bank Group. All Rights Reserved. Special case – Remittances from abroad An important component of household income in some countries is the transfer of remittances by family members from abroad The concept of residence is important in determining the ways in which such remittances should be treated – border, seasonal, and other short-term (less than one year) workers are not resident in the economy where they work, and so their gross income from employment is recorded as compensation of employees of the country in which they live – remittances include only those transfers from abroad made by workers who are residents of the economy in which they are employed 13

Copyright 2010, The World Bank Group. All Rights Reserved. Special case – HFCE on health services Health products and services can be purchased in four ways: – households purchase and pay for them in full – households purchase private insurance and the insurance company reimburses the purchaser or the provider of the products – they are purchased and paid for in full by government, for distribution to households – they are purchased and paid for partly by households and partly by government From a 2008 SNA point of view, it is necessary to identify who is consuming the good or service as well as who is paying for it – this is the basis for the measure of Actual final consumption, which is very important for the ICP 14

Copyright 2010, The World Bank Group. All Rights Reserved. Special case - Net expenditures abroad Conceptually, household final consumption expenditure (HFCE) refers to the expenditure incurred by resident households, whether that expenditure is incurred within the economic territory or abroad HFCE can be calculated by estimating the total expenditure by all households, whether resident or not, in the economic territory and then adjusting this figure by adding expenditures by residents abroad and subtracting expenditures by non- residents in the economic territory – the adjustment generally appears in a country’s accounts as a single line item – however, this is a practical adjustment item rather than a conceptual item and so it is not an aggregate defined in the 2008 SNA 15

Copyright 2010, The World Bank Group. All Rights Reserved. Special case - Net expenditures abroad (continued) Whether net expenditures abroad needs to be calculated as part of HFCE depends on the data sources (e.g. a survey of retailers compared with a household expenditure survey) There are 4 potential methods of estimating HFCE – as a residual between production-based GDP and the government, gross capital formation and net international trade expenditure components, which is not a desirable method – using data from a household expenditure survey (HES), which is the preferred method – using data from a survey of retailers – using econometric techniques based on relationships between national accounts data items, which is also not a recommended approach 16

Copyright 2010, The World Bank Group. All Rights Reserved. Net expenditures abroad 17 Scenario 1Scenario 2Scenario 3 Household expenditure survey (HES) Retail survey840 Imputed expenditures (e.g. owner-occupied dwellings) 200 Purchases by residents abroad 100 Purchases by non-residents in domestic territory -40 HFCE1100

Copyright 2010, The World Bank Group. All Rights Reserved. Effects of net expenditures abroad on GDP 18 Scenario 1Scenario 2Scenario 3 HES Retail survey840 Imputed expenditures200 Net expenditures abroad HFCE1100 Other final demand items600 Purchases by non-residents in domestic territory (exports) 40 Other exports250 Purchases by residents abroad (imports) –100 Other imports–350 GDP1540

Copyright 2010, The World Bank Group. All Rights Reserved. References International Transactions in Remittances: Guide for Compilers and Users System of National Accounts, 2008 (Chapter 24 describes the Household sector in detail) COICOP 19