For Official Use
STD/NA(2002)5
Organisation de Coopération et de Développement Economiques
Organisation for Economic Co-operation and Development
___________________________________________________________________________________________
_____________
English - Or. French
STATISTICS DIRECTORATE
STD/NA(2002)5
For Official Use
National Accounts
THE VARIOUS MEASURES OF THE SAVING RATE AND THEIR INTERPRETATION
Paper prepared by Cédric Audenis, Stéphane Grégoir, Claudie Louvot
INSEE - PARIS
OECD MEETING OF NATIONAL ACCOUNTS EXPERTS
Château de la Muette, Paris
8-11 October 2002
Beginning at 9:30 a.m. on the first day
stephane.gregoir@insee.fr
cedric.audenis@dp.finances.gouv.fr
English - Or. French
Translation n° 14255
Document complet disponible sur OLIS dans son format d'origine
Complete document available on OLIS in its original format
STD/NA(2002)5
TABLE OF CONTENTS
I.
WHAT SAVING RATE, AND FOR MEASURING WHAT? ............................................................5
II. A COMMON MEASURE THAT CAN BE CONSTRUCTED TODAY ............................................7
2.1
The role of individually identifiable consumption ......................................................................8
2.2
The role of saving for retirement ................................................................................................9
III. NECESSARY ACCOUNTING IMPROVEMENTS:
THE TREATMENT OF CAPITAL
DEPRECIATION AND INDIRECT TAXES ...........................................................................................10
3.1
The role of capital depreciation .................................................................................................11
3.2
The role of the system of tax collection.....................................................................................12
IV. THE TREATMENT OF CAPITAL GAINS AND DURABLE GOODS - TWO AREAS THAT
WOULD MERIT CLOSER STUDY.........................................................................................................13
4.1
The role of capital gains ............................................................................................................13
4.2
The treatment of durable goods .................................................................................................15
V. CONCLUSION ..................................................................................................................................20
BIBLIOGRAPHY ......................................................................................................................................22
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STD/NA(2002)5
THE VARIOUS MEASURES OF THE SAVING RATE AND THEIR INTERPRETATION
Abstract :
The household saving rate measures the unconsumed share of household income. It is widely used in both
short and long-term economic analysis. In the short term, changes in the saving rate often serve to cushion
economic fluctuations : the higher the saving rate, the less household consumption is affected by a sharp
slowdown in household income. In the longer term, as household saving is a major component of a
country’s lending capacity, it plays an essential role in the functioning of the economy and helps to
anticipate future growth conditions. In the absence of a theoretical model, it is difficult to gauge the
absolute level of saving required to sustain an economy’s rate of growth. International comparison does,
however, make it possible to analyse a country’s relative situation.
While the standard economic measures are precisely defined in national accounting, some of them have
different acceptations. To a certain extent, therefore, the choice of concept remains a matter of judgement;
economists may choose to depart from the usual definitions on theoretical grounds. This is particularly
true of the saving rate. To start with, the definition of income can be broad or narrow. Should one include
the depreciation -- or appreciation -- of household assets, and take account of the ageing of housing
assets? Should indirect taxes be deducted in the same way as direct taxes? Also, how should one count
individually identifiable consumption in the form of social benefits in kind paid to households, and how
should private pension saving be treated? The boundary between consumption and saving can also shift if
purchases of durable goods are treated as investment. These choices are not always neutral with regard to
the evaluation of saving. Depending on a country’s institutional rules, and household consumption and
saving habits, they can modify the measure of the saving rate quite markedly. For example, depending on
the definitions used, the French saving rate can vary within a range of 10 points or even more.
For the purposes of international comparison, a common definition is needed. However, even if a single
definition of the saving rate were agreed internationally, other difficulties would still reduce the
comparability of aggregates, in particular institutional differences. It is desirable to choose a definition of
the household saving rate that is the least sensitive to these institutional differences. At the present time,
the unavailability or unreliability of data obliges us to opt for a definition of the saving rate as the ratio of
gross saving to the sum of adjusted gross disposable income and a pension fund adjustment. Alternative
definitions might be more useful and complete. We introduce some of them and illustrate from a
quantitative point of view the modifications they imply on the measurement of French saving rate.
3
STD/NA(2002)5
THE VARIOUS MEASURES OF THE SAVING RATE AND THEIR INTERPRETATION
1.
The saving rate is usually defined at the fraction of income that is not consumed. Its measurement
depends on the content of two fundamental aggregates -- income and consumption, which can vary
depending on the point of view one adopts. There are thus several definitions of the saving rate,
giving rise to different interpretations. In particular, countries are free to choose the saving rate they
wish to publish, which makes international comparison difficult. The OECD publishes the saving
rates of its Member countries but they are not necessarily harmonised.
2.
It is thus difficult to identify in the differences between saving rates, the share that is ascribable to
real differences in behaviour and that which stems from accounting conventions. The spread of
saving rates published is very wide; according to the statistics published by the OECD, the saving
rates of the main countries can vary from 1% of household income, for the lowest -- the United
States and the United Kingdom, to 16% for the highest -- the case of France (Figure 1).
3.
Being relatively contingent, the choice of accounting conventions can lead to measures of aggregates
that are highly dependent on a country’s institutional organisation, and thus not without impact on
the diagnosis of its economic situation. To make that impact clearer, we shall review those
conventions and evaluate their impact for a few main countries. To start with, we shall recommend
the use of a saving rate calculated solely on the basis of national accounting concepts. Then, we
shall examine a number of alternative conventions that would improve the comparability of
measures of the saving rate but which depart from those concepts. However, to apply this new
method, additional information would have to be collected and harmonised accounting rules would
have to be developed.
4
STD/NA(2002)5
Figure 1 : Household saving rates published by the OECD
in % of disposable income
20,0
16,0
12,0
8,0
4,0
0,0
1991
1992
Belgium
Germany
1993
1994
1995
Spain
France
1996
1997
Italy
United States
1998
Netherland
sJapan
1999
2000
United Kingdom
I.
WHAT SAVING RATE, AND FOR MEASURING WHAT?
4.
The concepts used in national accounting were defined conventionally on the basis of economic
considerations and the use to be made of them. They are described in the System of National
Accounts (SNA 93) and its European adaptation, the European System of Accounts (ESA 95),
drawn up by the national accountants of the UN, the World Bank, the IMF, the OECD and Eurostat.
These texts should be considered as recommendations, their aim being to promote the harmonisation
of country approaches; ESA lays down a set of rules with which all European Union countries must
comply.
5.
Several definitions of consumption and income are to be found alongside one another in these texts,
making possible different measures of the saving rate. Statisticians and economists thus have some
latitude in the manner in which they construct the rate; on theoretical grounds they may also wish to
modify the definition of either of these aggregates. The definition chosen should therefore
correspond as closely as possible to the economic interpretation one wishes to give to the saving
rate. Several interpretations can be given to this statistic, partly corresponding to the different
objectives of household saving. These objectives are of various orders and are constrained by the
institutional setting in which they are pursued. In the short term, households save as a precaution
against transient risks that can evolve over time and that can covered against only partly, such as the
loss of one’s job. In the longer term, they save in order to constitute a capital to supplement their
income1 and enable them to maintain their level of consumption when they retire. In turn, their
1.
It can also lead to a reduction in their current expenditure, for example, when a household becomes a home
owner after having been a tenant. In national accounting, home-owner households pay themselves a rent which
adds to their resources, and consume a housing service which adds to their consumption.
5
STD/NA(2002)5
saving serves to finance productive investment. A savings surplus or shortfall thus has an impact on
the short and long-term robustness of the economy. Without a theoretical model, it is difficult to
gauge the absolute level of saving required to support a given rate of growth of an economy. On the
other hand, international comparison makes it possible to analyse each country’s relative position.
6.
There are two main interpretations of the saving rate. In the short term, it shows a country’s
capacity to cope with a cyclical downturn. In the long term, it indicates the economy’s capacity to
finance itself2. In particular, it should show households’ saving to provide for their future needs.
For the purposes of international comparison, a common definition is needed. However, even if a
single definition of the saving rate were agreed internationally, other difficulties would still reduce
the comparability of aggregates, in particular institutional differences as we saw above. It is
desirable to choose a definition of the household saving that is the least sensitive to these
institutional differences between countries.
7.
Before going any further, it should be pointed out that in national accounts, the accounts of the
“households” institutional sector comprise those of sole proprietors. In order to treat the
“entrepreneur” side separately from the “household” one, it would first be necessary to identify and
measure the two related aggregates such as for instance investment, which is not simple. We shall
therefore try to draw as far as possible on the standard concepts in ESA 95 and then we shall
propose modifications to them which we consider would be useful.
8.
The saving rate is currently defined as the unconsumed fraction of income derived from gross or net
production3. However, this measurement is unsatisfactory for various reasons. For example, the
capital gains made by households vis-à-vis other sectors unquestionably increase their wealth but are
not included in their saving. Likewise, a country that heavily taxes housing investment will, other
things being equal, have a higher saving rate, but this will not mean that the provision made for
future needs is greater. Lastly, the manner in which social benefits are treated will also affect the
evaluation of households’ actual income. Some countries have social protection systems that are
more developed than others; depending on whether health expenditure is imputed to the government
that makes it, or to the households that receive it, the evaluation of households’ income and their
consumption will be different.
9.
It is thus preferable to use adjusted4 disposable income and to deduct indirect taxes from it. Changes
in households’ claims on pension funds may also be considered as saving in so far as contributions
to such funds being voluntary, they supplement pay-as-you schemes. The saving rate should also
take account of households’ precautionary saving against future risks; fixed capital consumption
should therefore be deducted from income. Part of their consumption of durable goods could
therefore also be treated as investment, since like investment, such consumption is not immediate
but spread over time. Similarly, capital gains made by households vis-à-vis other institutional sectors
could be added to income since they contribute just as much as saving flows to capital formation.
10.
While this definition would be preferable to the one in current use, it still has some drawbacks. In
particular, several characteristics of saving need to be taken into account. Is it risky or not? Is it
2.
As households are the source of an economy’s structural financing, a low saving rate means that the economy is
dependent on the decisions of foreign investors.
3.
Including capital income.
4.
Adjusted gross disposable income is the sum of disposable income and social transfers in kind (or individually
identifiable consumption by general government).
6
STD/NA(2002)5
available in the short term? What is the return on it5? The latter may vary from one country to
another; it is affected by taxation as well as by corporate profits in the case of households that hold
shares, or by government debt in the case of those that hold bonds. These issues are not addressed in
this paper.
11.
A last point must be addressed : The changes in the definition we introduce here have for sole
objectives to get more internationally comparable statistics. They are not always desirable when
statistical or econometric analyses of household saving or consumption behaviour in a given country
are considered.
II.
A COMMON MEASURE THAT CAN BE CONSTRUCTED TODAY
12.
For all sorts of practical reasons -- unreliability or lack of data, difficulties of harmonisation -- at the
present time it is impossible to construct the saving rate as defined above. Nevertheless, a saving
rate that is insensitive to cross-country institutional differences can be constructed with data that are
sufficiently reliable. That rate is defined as the ratio of gross household saving to the sum of
adjusted gross disposable income and an adjustment for pension fund contributions. It differs from
the rate usually published in the French national accounts by the fact that it includes individually
identifiable consumption in income. It was calculated for a number of industrialised countries. The
results are shown in Figure 2 below.
Figure 2 : Household saving rate
Gross (including FCC), in % of adjusted disposable income
27%
Belgium
Netherland
s
France
Spain
United Kingdom
United States
Italy
Germany
Japan
24%
21%
18%
15%
12%
9%
6%
3%
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
5.
This is a function of capital income, capital gains and the taxation of saving.
7
STD/NA(2002)5
2.1
The role of individually identifiable consumption
13.
The cost of producing the public services delivered to households, such as health care and education,
is borne by government in varying degrees from one country to the next. In continental Europe, for
example, health expenditure is to a large extent borne by the government. In accounting terms, it
may be considered that such expenditure is virtually absent from household consumption; on the
other hand, households contribute to social security funds, so their disposable income is decreased
accordingly. Health expenditure appears as consumption in the general government account. In the
United States, in contrast, a large part of health expenditure is shouldered by households; their
income is not reduced by contributions but their expenditure is booked under household
consumption. At the macroeconomic level, if contributions and expenditure are balanced, the
additional income offsets the health care consumption. These institutional differences thus do not
have any (or only little) impact on the level of saving. On the other hand, with this method of
counting, the household saving rate in countries with the least socialised systems is understated
relative to those with more socialised systems, since contributions are not deducted from household
income in the denominator, while saving in the numerator is unchanged (Table 1). The latest
version of the international systems of national accounts (SNA93) includes a concept of income that
is less sensitive to institutional differences. This concept, known as “adjusted disposable income”,
corresponds to disposable income plus social transfers in kind, such as refunds of social security
benefits and certain individually identifiable public expenditures, notably health care and education.
To this adjusted gross disposable income corresponds the notion of “actual consumption” (Table 1)6.
On the basis of these definitions, the saving rate is revised downwards compared with the definition
that refers to disposable income, all the more in that the share of social transfers is large. The
adjustment required is thus not uniform -- 2.2 points for Germany, 3 points for France and 0.7 point
for the United States. The share of social transfers in kind in gross disposable varies from about 16
per cent in Germany, Spain, Italy, the United Kingdom and the United States, to 23 per cent for
Belgium, France and the Netherlands, and to over 30 per cent in Denmark, Finland and Sweden. A
part of this adjustment may be due in practice to different borderline between individual and
collective goods and services, but these differences must remain small in Europe as its members use
the same classification of the functions of government (COFOG).
6.
While this concept of the saving rate is insensitive to the method of financing -- public or private -- of health and
education systems, etc., it is not less sensitive than usual to the financial balance of the system. Let there be two
countries in which households receive the same amount of education and health services. In the first country, the
system is balanced, in the second the contributions or taxes paid by households are less than the services
delivered. Household saving is thus higher in the country in which the system is not in balance, but the
additional saving serves to finance the public deficit generated by the imbalance. This being so, the higher
saving rate cannot be interpreted as bolstering the long-term financing of the economy, nor as households’
financial provision against future risks. As the financial balance of individually identifiable consumption is not
currently available, there is no solution to this problem.
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STD/NA(2002)5
Table 1
Treatment of social transfers in kind
As taxes but not as benefits Income account
Uses
Resources
Employee social
Gross wages
contributions
As taxes and as benefits Income account
Uses
Resources
Employee social
Gross wages
contributions
Employer social
contributions
Employer social
contributions
Employer social
contributions
Employer social
contributions
Income tax,
CSG,CRDS
Solely monetary social
benefits
Income tax, CSG,CRDS
Social benefits and social
transfers in kind
DISPOSABLE
INCOME
Use of income account
Disposable income
Consumption
expenditure
ADJUSTED
DISPOSABLE INCOME
Use of income account
Adjusted disposable
Actual consumption
income
SAVING
SAVING
This table shows the main operations relating to the household income account. Two manners of treating social
transfers are presented. On the right, transfers in kind are included in adjusted disposable income and actual
consumption. Items affected by this change are shown in bold. Balances are in capitals.
2.2
The role of saving for retirement
14.
Population ageing is affecting very many countries, and will have numerous consequences, inter alia
on pension funding in the developed countries. Insofar as one of the reasons for saving is to
constitute an income for retirement, the decision to save can be sensitive to the types of pension
provision on offer. Some countries have decided to supplement public schemes by pension funds,
but the degree of development of these funds varies. Other countries have not implemented reforms
but various insurance products which not do offer the usual tax breaks associated with pension funds
are proposed. As private pension saving (via pension funds) is likely to become increasingly
important in coming years, this should be partly taken into account when measuring the saving rate.
15.
ESA 95 treats pension funds as follows. Payment by households into such funds are deducted from
disposable income and pension benefits are added to it, in line with accounting practices for transfers
to public pension schemes. The difference between the amount of payments by households and the
amount of benefits received is thus deducted when calculating gross disposable income (Table 2).
The further the system is from equilibrium, the more positive the variation in pensions fund rights.
Moreover, the variation shows up in households’ financial accounts. In order to match the balance
of their real accounts with that of their financial accounts, and insofar as households are considered
to be the owners of the funds, this quantity is added to disposable income in the use-of-income
account. It thus finally appears in saving like a life insurance product. But in the case of life
insurance, as payments are not deducted from disposable income and benefits are not added to it,
this quantity is considered from the outset to be unconsumed disposable income.
16.
The important question is whether we want, from an economic point of view, to treat pension funds
as an alternative to pay-as-you pension schemes, or as a financial investment enjoying specific tax
9
STD/NA(2002)5
breaks7. On the definitions of ESA 95, the flows that they generate are considered to be similar to
those of a pay-as-you scheme for the calculation of income, but like those of a life insurance product
for the calculation of saving. If we want to treat them in the same as a pay-as-you go pension
scheme, the saving rate should be defined as the ratio of saving less the pension fund adjustment, to
gross disposable income. If not, this adjustment should be added to disposable income.
17.
For the purposes of spatial and temporal comparison of saving rates, it seems preferable to treat
funded pension schemes as insurance products similar to life insurance, for several reasons. First, it
is consistent with financial account flows and the fact that in national accounts, households are
treated as the owners of pension funds. Second, the partial transition to a funded pension system is
accompanied by employee saving, the scale of which will vary according to their income level. If
saving by the least-well paid is low, from an economic point of view it should be possible to observe
this in the trend of the saving rate. Lastly, from a more microeconomic point of view, it seems that
pension fund pay-outs rarely take the form of an annuity8. There is little pooling of survivor’s risk,
unlike in a pay-as-you-go scheme. In this, pension funds differ from pay-as-you-go schemes.
18.
Admittedly, this is not a crucial issue in most countries of continental Europe since funded pension
schemes currently account for only a small proportion of households’ saving products. On the other
hand, if pension funds do develop in coming years, the saving rate will be lower on an accounting
basis if contributions to them are treated as contributions to pay-as-you schemes, but without
allowing the real amount of saving for retirement to be gauged. Empirically, it is not in those
countries where pension funds have existed for the longest and are the most developed that the level
of the saving rate is most affected, since when the system matures, the benefits paid out partly offset
the contributions. Thus, in the United Kingdom and the United States, the change in households’
claims on pension funds amounts to 3% of income, whereas in the Netherlands, where pension funds
are more recent, it amounts to nearly 8% of income.
III.
NECESSARY ACCOUNTING IMPROVEMENTS:
DEPRECIATION AND INDIRECT TAXES
19.
For purposes of international comparison of saving rates, fixed capital consumption and indirect
taxes should be deducted from income. The data needed to do this are not yet sufficiently
THE TREATMENT OF CAPITAL
7.
ESA95 para. 4.87 “In order for an individual policy to be treated as part of a social insurance scheme, the
eventualities or circumstances against which the participants are insured must correspond to the risks or needs
listed in paragraph 4.84 above (§ 4.84 -d : old age), and in addition, one or more of the following conditions
must be satisfied:
a) Participation in the scheme is obligatory either by law for a specified category of worker, whether
employees, self- or non-employed, or under the terms and conditions of employment of an employee, or
group of employees;
b) The scheme is a collective one operated for the benefit of a designated group of workers, whether employees,
self- or non-employed, participation being restricted to members of that group;
c) An employer makes a contractual (actual or imputed) to the scheme on behalf of an employee, whether or
not the employee also makes a contribution.
8.
This seems to be due to an adverse selection effect insofar as the insurance companies that pay out the annuities
must comply with a set of prudential rules. Due to a selection of the persons taking out such contracts, insurers
produce a costly service for which there is little demand from agents with a low life expectancy, thus justifying
the high cost (Mitchell, Poterba, Warshawsky and Brown (1999), Gaudemet (2001), Finkelstein and Poterba
(2002), etc.)
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STD/NA(2002)5
harmonised or even published. However, they do exist, and provide that the current attempt to
harmonise them succeeds, they could be used to construct the saving rate we are advocating.
Table 2
treatment of pension funds in ESA 95
Income account
Uses
Resources
Employee social contributions
Gross wages
Employer social contributions
Employer social contributions
Payments into pension funds
Social benefits including public pensions
Payments into pension funds
Income tax, CSG,CRDS
DISPOSABLE INCOME
Use of income account
Consumption
Disposable income
SAVING
Adjustment for changes in households’
claims on pension funds
3.1
The role of capital depreciation
20.
The loss of value through obsolescence of households’ housing assets and sole proprietors’
productive capital is equivalent to a production cost called “consumption of fixed capital”. This may
or may not be deducted from value added: in the former case, we speak of net value added, in the
latter, of gross value added. Similarly, households’ disposable income and savings may be gross or
net.
21.
As saving can serve in part or even in whole to offset capital depreciation, many countries publish,
in line with the recommendations of SNA 93, a saving rate net of fixed capital consumption.
Nevertheless, households’ assets consist essentially of housing but also comprise the productive
capital of sole proprietors. While the notion of net saving is easy to grasp for the second form of
capital insofar as sole proprietors must regularly renew equipment with a relatively short life, it is
less so for the first form. The life of housing is more difficult to define. Apart from accidental
destruction such as domestic fires, housing fixed capital consumption ought to correspond to the
investment that households must make in order to maintain the quality of the housing service they
receive. However, a priori it is difficult to measure.
22.
Household fixed capital consumption represents 4% of income in the United Kingdom and the
United States, and over 6% in Germany, Italy and Belgium. France is in an intermediate position,
with 5% of income. In all countries, therefore, there is a big gap between gross and net saving rates.
In the light of this comparison, one sees once again the importance of conventions. The German
11
STD/NA(2002)5
saving rate in particular is published net -- 10% -- which misleads some commentators when they
compare it with the gross rate as defined in the French national accounts.
23.
The methods of measuring capital depreciation differ widely from one country to another (especially
as regards the life and valuation of installed capital). Several countries use service lives as reported
by enterprises. But a recent report by the OECD emphasises that “they are misleading statistics and
have no place in the accounting system”. It is possible that the uncertainty surrounding this measure9
is of the same order as the differences observed between countries. For the purposes of international
comparison, it is probably preferable at the present time to use gross rates.
3.2
The role of the system of tax collection
24.
Gross disposable income is income after deduction of taxes collected directly by government. In
contrast, indirect taxes on products (value added tax, tax on petroleum products, etc.) are, as their
name indicates, levied on consumption or investment10. Their characteristic is that they affect
households only insofar as they consume or invest. They are thus deducted neither from their
income nor their consumption or investment expenditure. Other things being equal, the measure of
income is higher in countries where indirect taxes represent a large share of taxation. However,
insofar as a larger share of indirect taxes is passed on to retail prices, all taxes included, the
additional nominal income does not give households more purchasing power.
25.
For the purposes of international comparison, an alternative definition -- and which would be
independent of the structure of tax revenue -- would be to record indirect taxes on products in the
uses of the household income account, and to deduct them from income just like direct taxes, and
from consumption and investment (Table 3). Saving would be reduced accordingly but solely by the
amount of indirect taxes levied on investment. A priori, the impact on the saving rate is ambiguous:
the tax revenue from consumption is higher than for housing investment, but the former modifies the
denominator (second order) while the latter modifies the numerator (first order). An estimate was
done for France: treating indirect and direct taxes in the same way raises the saving rate by 1.7
point. It was not possible to do the same estimate for other countries because indirect taxes could
not be cross-matched with institutional sectors. At the most, it may be noted that the burden of
indirect taxes is relatively uniform in Europe, between 15 and 22 points of household income.
France is in mid-way position with 18.5 points. In the United States and Japan, this share is much
smaller -- respectively 6.5 and 7.8 points. The adjustment that would have to be made for these two
countries would thus be much smaller.
9.
Measurement of the depreciation of household housing capital is just as unreliable.
10 .
In France, for example, VAT is levied on housing investment. In 2000, the VAT paid on such investment
represented 9% of the total VAT paid by households.
12
STD/NA(2002)5
Table 3
Treatment of indirect taxes :
Included in income
Income account
Uses
Resources
Employee social
Gross wages
contributions
Treated as taxes
Income account
Uses
Employee social
contributions
Resources
Gross wages
Employer social
contributions
Employer social
contributions
Employer social
contributions
Employer social
contributions
Income tax, CSG,CRDS
Income tax, CSG,CRDS
Indirect taxes
Social benefits
DISPOSABLE
INCOME (including
indirect taxes)
Use of income account
Consumption (including
Disposable
indirect taxes)
income(including
indirect taxes)
DISPOSABLE
Social benefits
INCOME (excluding
indirect taxes)
Use of income account
Consumption (excluding
Disposable
indirect taxes)
income(excluding
indirect taxes)
SAVING
SAVING
IV.
THE TREATMENT OF CAPITAL GAINS AND DURABLE GOODS - TWO AREAS THAT
WOULD MERIT CLOSER STUDY
26.
It does not seem feasible to us, or cost-effective, to modify today the way capital gains realised by
households, or their expenditure on durable goods, are treated. As regards capital gains by
households, only those realised vis-à-vis another sector actually increase their wealth as an
institutional sector. But the accounts are unable to distinguish unrealised capital gains from those
that have been realised. In the case of durable goods expenditure, one has to distinguish that which is
akin to expenditure on other saving products, from that which is akin to current expenditure. In
addition, one has to allow for their depreciation on account of their short life. One then encounters
the same problems as when calculating the consumption of fixed capital, but compounded by the
fact that not enough is known about the life of these products.
4.1
The role of capital gains
27.
The foregoing definitions propose alternative measures of the saving rate that are less sensitive to
institutional differences between countries, but they deal essentially with income from production.
As regards investment income, only interest and dividends are included in household income. The
value of household assets -- housing and monetary and financial investments -- also varies over time.
As long as these asset have not been sold, these “holding gains” are only potential -- hence the term
“unrealised capital gains (or losses)” applied to them. The day a household actually makes a capital
gain by selling an asset, it is said to be “realised”. Unlike interest and dividends, these unrealised or
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STD/NA(2002)5
realised capital gains are not derived from production. They are not therefore included in household
income. In contrast, capital gains taxes are deducted from disposable income.
28.
Thus, other things being equal, a country in which households make large capital gains could see its
saving rate fall simply by virtue of the taxes levied on those gains. Households would apparently
dispose of a resource that they could either consume or invest, but for accounting purposes only their
wealth increases. Accordingly, if we wish to gauge saving by households to cover future risks, the
analysis of fluctuations in their saving rate “on a national accounts basis” should take into account
any changes in their wealth, all the more in that the amount of capital gains varies widely from one
country to another, depending in particular on how risky the structure of investments is. Some
authors therefore argue that capital gains should be included when calculating the saving rate.
29.
Given the amounts involved, including capital gains in income would radically modify the relative
levels of cross-country saving rates. The level of wealth as measured by the national accounts in
points of income, varies widely across Europe. In the case of financial wealth, for which we have
comparable data for 2000, the financial wealth of Belgian, Dutch and UK households is equal to or
more than four times their income. They are followed by French and Italian households, with less
than three times their income, and then by Spanish and German households, with less than twice
their income. France is thus in a median position. Large disparities in capital gains stem directly
from these differences in wealth. Between 1995 and 1999, the increase in the financial assets of UK,
Belgian and Dutch households represented more than 150 points of disposable income, compared
with 100 in France and Spain, 50 in Italy and 25 in Germany. The disparities in saving rates would
in comparison seem derisory if the measure of capital gains was not to a large extent a matter of
convention.
30.
The inclusion of capital gains in income poses all sorts of difficulties.
31.
To start with, only realised capital gains could be incorporated in household income. Unrealised
capital gains are virtual: they have not yet been converted into liquidities, and cannot be so without
the risk of triggering a fall in share prices. However, unrealised and realised capital gains are not
distinguished in national accounts, and the former represent the large bulk of capital gains.
Furthermore, unrealised capital gains are not only virtual, for the reasons explained above, but their
valuation is a matter of convention and only approximate. The uncertainties inherent in their
valuation affect each country differently, depending on the structure of households’ assets and in
particular the proportion of unlisted shares in households’ assets. In France, 95% of the increase in
households’ financial assets between 1995 and 1990 was due to the increase in the “shares” item.
But the latter was due partly to the increase in the value of listed shares, which represent less than
20% of the shares held by households, and for a very large part to unlisted shares, valuations of
which are very approximate. They are valued in relation to changes in stock market prices. It is
difficult to obtain comparable cross-country data. Knowing however that UK and Dutch households
hold shares primarily via pension funds, it may be assumed that the observed increase in their wealth
is less conventional. This assumption seems borne out by the fact that more than 50% of the capital
gains of Dutch and UK households between 1996 and 1999 stemmed from “changes in households’
claims on pension funds and life insurance schemes” while in the other countries more than 80% of
the capital gains were due to an increase in the “shares” item.
32.
Lastly, the book increase in households’ assets that results from capital gains being realised does not
represent an increase in real assets for households as an institutional sector as long as they do not sell
assets to another sector: as long as they only trade assets between one another, even if the price of
14
STD/NA(2002)5
those assets increases, they are not richer overall11. Accordingly, only capital gains realised vis-à-vis
another sector represent an addition to wealth that can be used for other expenditures, and could
possibly be considered household saving.
4.2
The treatment of durable goods
33.
If we consider that saving enables households to manage their expenditure over time, whereas
consumption reflects their preference for the present, we have to look at the contents of the latter,
relatively heterogeneous, aggregate. The components of household consumption are distinguished
according to their degree of “durability”. The following are usually considered to be durable goods:
vehicles, furniture, domestic electrical appliances, electronic equipment (photo and video equipment,
computers, etc.); routine maintenance work in the home can also be included, and the list is not
exhaustive. Most countries publish sub-aggregates of household consumption according to the
degree of durability of the goods in question. The “durable” character of the aforementioned goods
is recognised by all countries; in contrast, some countries consider to be “durable goods” goods
that other countries tend to regard as semi-durable goods, for example, furnishing fabrics or
dishware.
34.
In contrast with consumable items, a number of which are basic necessities, durable goods are not
intended for immediate consumption. Also, they are not usually indispensable and their life can be
extended, which allows households to postpone their purchase decisions if they have to replace
them. In response to fluctuations in their income, they make decisions regarding this expenditure
similar to those they make regarding investments. Their decisions have a temporal dimension: they
are based on the possibilities of financing the purchases, themselves dependent on their saving
capacity and credit conditions rather than on satisfying an immediate need. One may therefore ask
whether it would not be just as appropriate to classify durable goods in the household capital account
as in consumption.
35.
As this would increase saving, the saving rate would also increase, all the more in that the proportion
of expenditure on durable goods in household expenditure were large. It would thus be expected
that this change would have a bigger impact on the saving rate of US households than on that of
French households (see below).
36.
Another factor warrants treating expenditure on durable goods as investment. Both US and French
data show that households’ purchases of durable goods are very sensitive to variations in their
income. Measured by the average elasticity of this expenditure with regard to income, the sensitivity
is similar in the United States to that in France. When the economy is growing, favourable
expectations prompt households to increase their expenditure on durable goods by an amount that
exceeds the increase in their income. Conversely, they may reduce this expenditure during periods of
economic slowdown. In contrast, non-durable goods consumption, which satisfies more immediate
needs, is much more inert.
37.
That said, the “durable goods” aggregate is itself heterogeneous. Purchases of domestic durable
goods (furniture, domestic electrical appliances, etc.) are closely correlated with the housing
investment cycle, while those of other durables (computers, cars, photo and video equipment, etc.)
are much more volatile (Figure 3). If we reason that behaviour is homogeneous within the
accounting aggregates, it would seem that housing durable goods can be treated -- much more so
than other durable goods -- like investment. Non-housing-related durable goods are themselves
11 .
They are even poorer if they finance their purchases by borrowing from another sector.
15
STD/NA(2002)5
heterogeneous. The need for this type of purchase can be accentuated by certain social choices. For
example, when public transport facilities are poor, the need to have a car is greater. The public
investment corresponding to such facilities is deducted from households’ resources via taxation, and
households pay a user charge which shows up in consumption. In the absence of such investment,
however, households must constitute a capital to provide the service. By treating such durable goods
as investment, one is saying that the two situations are similar. Admittedly, it highlights the
differences in ownership in national accounting terms, but when investment flows are small as a
proportion of disposable income (including the share of direct taxes relating to these investments),
the aforementioned treatment gives, other things being equal, saving rates that are much closer in
both situations.
38.
Treating purchases of durable goods as investment has technical repercussions. Not only does it
mean that expenditure on durable goods is booked in the capital account instead of the use-ofincome account, it is also necessary to value the service rendered by the fixed capital constituted by
the durable goods. The value of this service is then treated as additional own-account income which
is entirely consumed by the household (Table 4, Box No. 1). Lastly, it should be pointed out that, in
the corporate account, durable goods are obligatorily treated as investments since by definition firms
do not “consume” in the sense of “final consumption”. The production of the service relating to
these goods is thus included in the company’s production.
39.
The complete calculation was done for France and the United States for the period 1978-2000. For
want of long series and given the problems of nomenclature, it was not possible to do the same
calculation for the other European countries.
40.
The increase in saving that results from booking durable goods in the capital account is,
proportionately, much bigger than the increase in income stemming from the value of the service
(Figure 4). The saving rate thus rises markedly -- in the case of French households, by 6 to 8 points.
The increase in the saving rate of US households is even bigger -- in the range of 8 to 11 points.
Figure 3 : Trend of expenditure by French households on durable goods and housing
investment
(in volume)
18
16
14
12
10
8
6
en
%
4
2
0
-2
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
-4
-6
-8
-10
-12
Housing-related durable goods
Other durables
16
Ihousing invesment
19
98
19
99
20
00
STD/NA(2002)5
41.
The magnitude of the difference between the size of the two saving rates is directly related to the
share of expenditure on durable goods in income ; the data used show this to be bigger in the United
States than in France -- 12% compared with about 8%. Not surprisingly, purchases of cars and new
technology (NTIC) products represent a larger chunk of the budget of US households than of French
households, especially during the recent period. However, the comparison is based on the standard
aggregates of durable goods published by the BEA in the case of the United States, and French
national accounts, the boundaries of which may be slightly different. In any case, the uncertainties
arising from these problems of nomenclature do not modify the magnitude of the difference nor the
economic interpretations or accounting conclusions that stem from it. The effect of treating durable
goods as investments is thus to bring the French and US saving rates closer together, especially
during the recent period.The highly cyclical nature of purchases of durable goods explains why the
adjustment is bigger during periods of growth. In France, it attains 8 points for the period between
1987 and 1989, and then falls sharply to under 6 points in 1997. In the United States, the biggest
adjustments relate to the middle of the 1980s and the recent period. During the recent period in
particular, US households’ purchases of durable goods rose sharply, accompanied by an historic fall
in the saving rate.
Figure 4 : Difference between ha rmonized sa ving ra te a nd the
sa ving ra te corrected for dura bles consumption
12
11
10
9
8
7
6
5
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
Fra nc e
19
88
19
89
19
90
19
91
United -Sta te s
17
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
STD/NA(2002)5
Box N° 1
Evaluating the service arising from the use of durable goods
If the purchases of durable goods were classified under investment, they would be treated in the household
account in the same way as housing, which for national accounting purposes is the only capital good
households are considered to have. A service is assigned to each housing property corresponding to its use,
irrespective of whether the property is occupied by a tenant or its owner. The value of the service rendered
is measured by the rent -- the actual rent in the case of tenants, the “imputed rent” in the case of owner
occupiers.
The service relating to the use of durable goods is of the same type. In order to evaluate the service
produced, it is necessary to make various assumptions. It is reasonable to assume that, in terms of volume,
the service relating to the good is independent of the good’s age. As long as the good is being used, every
year a service is assigned to successive investment flows I k , which is equal in volume to the ratio between
the initial value of the investment flows, and the life of the good disposable income (-). The production
related to this good ST , at a given date T, is obtained by summing cross-wise these annual flows and by
adding the production relating to the initial stock.
This stock is unknown but it is possible to get round the difficulty. The life of durable goods being
relatively short, the service corresponding to the stock becomes negligible after twenty years. As the series
used go back at least as far as 1949, it may be considered that from 1970, the service corresponding to a
given durable good is no longer undervalued. It is valued correctly, for any date T after 1970, by the
following formula :
ST  pT 
k T
 Ik 
  , where pT is the price of the investment.
k T  d 1  d 

The value of the service, i.e. the use value of the good, is thus considered to be equal to the consumption of
fixed capital as measured by a straight-line depreciation formula. In order to allow for the disparity in the
lives of the various durable goods, the calculation was done separately for seven to eight groups of goods
classified according to the nomenclature of the French and US annual accounts. They include new and
second-hand cars, televisions, washing machines, computers, furniture and maintenance work, etc. For
want of a better estimate, the lives of the durable goods were taken to be the same as industry estimates,
but provided they are plausible, the calculation is relatively unaffected if the values are different.
In the gross calculation, the service arising from the use of the durable goods increases household income
but is also consumed (Table 4). It therefore enters into the calculation of the saving rate only via the
denominator. It is thus primarily the fact of adding durables expenditure to saving that modifies the saving
rate.
18
STD/NA(2002)5
Table 4
calculating the saving rate
before and after reclassification of durables expenditure
before reclassification of durable goods
Income account
Uses
Resources
Wages and sole
proprietors’ GOS
Housing service
production
after reclassification of durable goods
Income account
Uses
Resources
Wages and sole
proprietors’ GOS
Production of housing
service
Production of durablegoods-related services
(S)
Transfers
Modified gross
disposable income =
GDI + S
Use of income account
Uses
Resources
Modified gross
disposable income =
GDI + S
User cost of durable
goods (S)
Other consumption,
including housing
service
Modified saving =
Sav. + P
Capital account
Uses
Resources
Modified saving
Investment, mainly in
housing
Purchases of durable
goods (P)
Capital transfers
Lending capacity
Transfers
Gross disposable
income (GDI)
Use of income account
Uses
Resources
Gross disposable
income
Purchases of durable
goods (P)
Other consumption,
including housing
service
Saving (Sav.)
Capital account
Uses
Resources
Saving
Investment, mainly in
housing
Capital transfers
Lending capacity
19
STD/NA(2002)5
V.
CONCLUSION
44.
All told, the saving rate obtained will be very different depending on which definition is used. Table
5 shows, for France in 2000, the impact on the saving rate of each of the modifications to the
convention used by French national accountants.
TABLE 5
IMPACT OF CHANGES IN ACCOUNTING DEFINITIONS ON THE LEVEL OF THE SAVING RATE
(in points of gross disposable income in 2000):
Impact of:
Individually
identifiable
consumption
Change in the saving rate
-3
FCC
-5,5
Indirect
taxes
Pension
funds
Durable
goods
Capital
gains12
+1,7
0
+6,3
+4,5
Note : the French national accounts give a gross saving rate, with non-adjusted income that includes indirect taxes
but not capital gains, and saving that does not include expenditure on durable goods. The adjustment for pension
funds is zero. A modification, for example ,in the treatment of depreciation of households’ physical assets (FCC)
reduces the saving rate by 5.5 points. Depending on the definition used, the French saving rate in 2000 varies
between 7.4 (15.9-3-5.5) and 28.4 points (15.9+ 1.7+ 6.3+4.5)
45.
In order to be able to compare meaningfully the saving rate across countries, it is necessary to
choose a measure which is insensitive to institutional differences and meets the usual economic
interpretations of that measure. Statisticians need to co-ordinate their efforts to enable the most
comparable statistics to be published. The following measure of the saving rate can be constructed
today:
The income used is gross and adjusted, and includes an adjustment for pension funds.
 To adjust the income, it is necessary to include social transfers in kind -- i.e. total individually
identifiable consumption by general government and NPIHS -- in gross disposable income.
 The adjustment for pension funds corresponds to the increase in households’ net claims on
pension funds. It is construed as the difference between payments into funds and funds paid out
to households.
46.
Secondly, for a relatively small extra cost, other improvements can be made. They relate to fixed
capital consumption and indirect taxes (on products). These should be deducted from income,
consumption then being considered net of indirect taxes on products.
 The measurement of fixed capital consumption is a particularly difficult task. A report by the
OECD (Measuring Capital, 2001) explains precisely how it should be estimated and sharply
criticises a few national accountants for using service lives reported by companies.
Harmonisation is needed in this area.
 Indirect taxes should be calculated by institutional sector and uses. Indirect taxes paid by
households on their consumption expenditure should be deducted from consumption. Those paid
by households on their investment expenditure should be deducted from their investment. Both
should obviously be deducted from income. When indirect taxes are paid only by households, the
12
This figure, which was deduced from capital gains taxes, was estimated by Babeau (2002) for 1999. It
is not equal to the net balance of capital gains realised by households vis-à-vis other sectors.
20
STD/NA(2002)5
operation is simple. In the opposite case, information or reasonable assumptions can be used.
Although these data are not public, VAT is usually broken down by sector and use in most
countries. It does not seem customary however to break down other indirect taxes by
institutional sector. In the case of taxes on petroleum products for example, a rough estimate can
be made by including enterprises’ intermediate consumption of fuel in their overall expenditure
on fuel, and by assuming that the tax is the same across sectors. One can thus calculate the taxes
on petroleum products paid by enterprises, and then by subtraction that paid by households.
47.
Lastly, the possibility of including two other elements -- capital gains and durables expenditure -- in
saving, should be examined more closely. However, precise statistics are lacking. It is important to
define the measures constructed as precisely as possible so as to ensure that they can be
meaningfully compared across countries.
 Capital gains realised vis-à-vis other sectors are included in income. Two problems of
measurement arise. First, national accounts do not distinguish between unrealised and realised
capital gains. The amount of realised capital gains can be estimated from capital gains taxes.
This estimate is necessarily rough however due to the various reliefs and exemptions that exist 13.
It nevertheless gives a fairly accurate idea of the order of the magnitude involved. Unfortunately,
it does not allow capital gains realised vis-à-vis other sectors to be distinguished.
 Certain durables are also included in saving. Firstly, two things need to be done. It is necessary to
decide which durables should be treated as investment. Next, the service rendered by the
durables, and their depreciation, has to be estimated. For want of information, the two are often
confused. Surveys of the rental market could probably be used to evaluate the service rendered.
To calculate depreciation, the same approach should be taken as for fixed capital consumption;
methods need to be harmonised.
13.
It is also necessary to take account of the fact that short-term and long-term capital gains are taxed
differently.
21
STD/NA(2002)5
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22