COMPARABILITY OF SAVING AND
PROFIT RATIOS
OECD National Accounts Experts Meeting
Chateau de la Muette, Paris
7-10 October 2003
1
Background


Discussion of alternative household saving measures
at October 2002 NAEM
ECB/OECD project
– Detailed examination of institutional sector accounts for the
euro area, the United States and Japan with particular
emphasis on household saving ratios, profit ratios and
investment ratios

Scope of this paper
– Household saving ratios
– Profit ratios
2
Household saving ratios

Issues relating to the basic measure of the household
saving ratio
–
–
–
–


Gross or net?
Include NPISH?
Change in net equity of households on pension funds
Adjusted household disposable income
Proposed definition for use in OECD Statistical
Databases (including Annex Table 24 of Economic
Outlook)
Further adjustments to the household saving ratio
3
Statistical Annex Table 24, OECD
Economic Outlook



Reproduced as Table 1 - shows household saving
ratios for 21 member countries
Footnotes to this table indicate differences in the data
currently being published for various countries
OECD Economics Department tends to use
measures for the household saving ratio and other
variables that will be readily recognised in the
member countries
– Hence what is published by member countries in their own
national accounts has an effect on international
comparability
4
Gross or net household saving




Net is the preferred measure
Only use gross if COFC estimates are deficient
Data for 7 countries is currently shown gross
Recommendation 1: It is recommended that the
seven countries (Belgium, Denmark, Italy,
Portugal, Spain, Switzerland and the United
Kingdom) include household saving ratios in
their national accounts publications on a net
basis instead of, or in addition to, the gross
measures.
5
Include NPISH

Data for 5 countries currently exclude NPISH

Recommendation 2: In the interests of
international comparability it is recommended
that the five countries (Czech Republic, Finland,
France, Japan and New Zealand) also include
household saving ratios for households including
NPISH in their national accounts publications.
6
Change in net equity of households on
pension funds



Current definition: B8 / (B6 + D8)
Where B8 = Net household saving
B6 = Net household disposable income
D8 = Change in net equity of households on
pension funds
Table 2 provides household saving ratios using this formula and
data from the OECD annual SNA93 database
Recommendation 3: It is recommended that countries that
have a non-nil value for the adjustment for the change in
equity of households on pension funds (D8) should verify
that their own saving ratios are consistent with this
definition.
7
Adjusted household disposable income

New concepts introduced in SNA93
– Collective and individual consumption for general
government
– Social transfers in kind
– Actual final consumption
– Adjusted household disposable income

New account in SNA93
– Use of adjusted disposable income account

These enable a more internationally comparable
household saving ratio to be computed
8
Adjusted household disposable income
(cont)

Net household saving (B8) / [Net adjusted household
disposable income (B7) + Adjustment for the change
in equity of households on pension funds (D8)]

Table 3 provides household saving ratios for member
countries using this definition and using data from the
OECD annual SNA93 database.

Table 4 shows the differences between this measure
and the current measure for the household saving
ratio shown in Table 2.
9
Proposed definition for the household
saving ratio

Recommendation 4: The household saving ratio
for inclusion in OECD Statistical Databases
(including Annex Table 24 of the OECD Economic
Outlook) should be defined as follows:
Net household saving (B8) / [Net adjusted
household disposable income (B7) + Adjustment
for the change in equity of households on
pension funds (D8)]

The ratio should be calculated including NPISH
for the present.
10
Proposed definition for the household
saving ratio (cont)

It is also recommended that countries publish
this measure of household saving in their own
national accounts publications in addition to the
traditional measure.

Question:
Are those countries that publish quarterly
household saving ratios able to provide estimates
for individual consumption for general
government on a quarterly basis?
11
Adjustments to the household saving ratio

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





Capital gains taxes
Direct taxes versus taxes on production and imports
Real net interest payments for households
Household durables
Potential and realised capital gains/losses
Other issues regarding pensions
Treatment of unincorporated enterprises
Financial accounts measure
12
Adjustments to the household saving ratio
(cont)

Statistics Directorate is working towards alternative
saving measures

Need to recognise the limitations of some of the
proposed adjustments since it cannot be assumed
that the economic behaviour of households would be
unaffected if different institutional arrangements
actually existed in particular countries.
13
Capital gains taxes

Proposed adjustment
– Treat capital gains taxes as capital transfers rather than
current transfers
– Add back capital gains taxes to household saving and
household disposable income

OECD paper to be discussed under agenda item 29
– Seems unlikely that a change in SNA93 will be
recommended to the ISWGNA

Item for capital gains taxes added to Table 900
14
Direct taxes versus taxes on production
and imports


Saving is not affected by the mix of these taxes but
household disposable income is
How adjust?
– Replace taxes on production etc by income taxes
– Replace income taxes by taxes on production etc
– Use a standard mix of taxes for all countries

Suggest the first of these alternatives
– Deduct taxes on production etc from HDI

Issues
– Taxes on production etc or taxes on products?
– Net of subsidies?
15
Direct taxes versus taxes on production
and imports (cont)

Issues (cont)
– How much is attributable to actual final consumption?
– Some of the production taxes could be replaced by income
taxes on corporations rather than all on households




Difficult to estimate what part of taxes on production
is attributable to actual final consumption
No reason to ignore subsidies
Therefore, propose using taxes on products less
subsidies on products as a rough approximation
Table 5 (adjusted ratios) and Table 6 (differences)
16
Real net interest payments for
households




Adjustment for the effect of inflation on interest rates
and interest flows
Neutral interest
Real interest = Nominal interest - neutral interest
Only include real interest flows when deriving
household saving and HDI, therefore need to
– Deduct neutral interest on assets
– Add neutral interest on liabilities

Assets used for adjustment should include assets
held on households behalf by pension funds, life
insurance corporations and mutual funds etc
17
Household durables


Households regard consumer durables as assets
Rental equivalence approach could be used to derive
alternative estimates in satellite accounts
– However, rental markets for long term use of consumer
durables may not be well developed
– Therefore, if we assume no operating surplus is generated
from consumer durables an approximate adjustment is to
subtract expenditure on durables from, and add consumption
of fixed capital on durables to, HFCE
– Consequently, household saving would be increased by net
investment in consumer durables
18
Household durables (cont)

OECD and Eurostat are discussing proposals for
additional data collection regarding household
durables and dwellings
– COFC for household durables, Capital stock for dwellings
and household durables, Capital gains/losses on dwellings

Recommendation 5: Countries are encouraged to
compile separate estimates of household final
consumption expenditure, capital stock and
consumption of fixed capital for consumer
durables.
19
Capital gains and losses


Have a significant impact on wealth and consumption
of households but are not included in household
income in SNA93
Potential versus realised capital gains
– Different impact on consumption than income from
production or transfers
– Impact may be different for realised as opposed to potential
capital gains
– Nominal or real capital gains?
20
Capital gains and losses (cont)

Recommendation 6: Rather than adjusting the
household saving ratio for capital gains/losses
directly, it is recommended that capital
gains/losses be used as an additional explanatory
variable when analysing household consumption
behaviour.
21
Pensions

Defined benefit schemes
– Problem of under or over funding

Unfunded pension schemes
– Actual pensions do not match accruing liabilities for these
schemes

Social security versus private pension schemes
– Different institutional arrangements contribute to observed
differences in household saving ratios
22
Pensions

Recommendation 7: It is recommended that adjustments in
relation to social security schemes should be undertaken
as a special exercise and not combined with other
adjustments to derive an alternative measure of the
household saving ratio.
The pensions EDG sponsored by the IMF provides an
opportunity to resolve the problems caused by defined
benefit schemes and unfunded pension schemes for public
sector employees in the context of the forthcoming revision
of SNA93. Anne Harrison’s paper on the pensions EDG
makes a valuable contribution concerning this issue.
23
Unincorporated enterprises



For which countries are unincorporated enterprises that are
treated as quasi-corporate quantitatively significant?
Do such countries compile estimates for compensation of
employees for working proprietors in quasi-corporations or
is the labour return to these working proprietors included in
operating surplus?
Do such countries have separate data on the level of
withdrawals from quasi-corporations or do they simply
assume that all of the entrepreneurial income of quasicorporations is transferred to households in the current
period?
24
Financial accounts measure


Change in financial position (financial account) versus Net
lending (capital account)
If all of the difference is assumed to be caused by deficiencies in
income flows then can derive the following alternative measure
of the household saving ratio
– Table 7 gives these ratios, and
– Table 8 shows the difference between these ratios and those in
Table 2.

Obviously the differences could be caused by deficiencies in
any of the items in the income, capital or financial accounts
25
Additional measures for the household
saving ratio

An alternative measure or a series of alternative
measures?

Do countries have a preference for whether a
series of saving ratios should be compiled, each
including an adjustment for one factor or whether
a single alternative measure should be compiled
that includes adjustments for all (or as many as
possible) of the various factors simultaneously?
26
Profit ratios



Country practices
Types of profit ratios
Definitions
–
–
–
–

Gross or net?
Numerator
Denominator for rates of return
Denominator for profit share
Institutional sector scope
27
Country practices

Profit ratios are presented in many different ways by
member countries
– United Kingdom
• Gross balance of primary incomes for non-financial
corporations as a share of gross national income
• Economic Trends article containing data for 34 countries for net
operating surplus over net capital stock plus inventories for
non-financial corporations
– United States
• 8 ratios; 4 rate of return measures and 4 profit share measures
• Ratios relate to private non-financial corporations
28
Country practices (cont)
– United States (cont)
• Net operating surplus and net entrepreneurial income are used
both before and after income tax as the numerator for each
type of measure (Note: Different terminology is used by BEA)
• Net capital stock plus inventories is used as the denominator
for rate of return measures
• Net factor income less NOS for public corporations is used as
the denominator for profit share measures
– Australia
• Gross operating surplus for financial and non-financial
corporations divided by total factor income
– France
• GOS/Gross value added at basic prices for all enterprises
(corporate and quasi-corporate plus unincorporated)
29
Types of profit ratios

Rates of return
– Profit over capital stock
– Used for profitability studies

Profit shares
– Profit over GDP, GNI or total factor income
– Used for analyses of returns to labour and capital

Profit margin
– Profit over output
– Not recommended at the macro economy level
30
Definitions for rate of return and profit
share measures

Gross or net
– Both numerator and denominator should be net of
consumption of fixed capital
– Use gross measure if consumption of fixed capital estimates
are deficient

Numerator (for both rates of return and profit shares)
– Net operating surplus
• Independent of the extent to which borrowed funds are used
– Entrepreneurial income
• After receipts of property income and payments of interest and
rent on non-produced assets used by the business
31
Definitions for rate of return and profit
share measures (cont)

Denominator for rate of return measures
–
–
–
–

Net capital stock for produced assets
Including inventories?
Non-produced tangible assets?
Non-produced intangible assets?
Denominator for profit share measures
– Net domestic product
– Net factor income
• Whole economy
• Institutional sector used for numerator
32
Institutional sector scope




Non-financial corporations
Financial corporations
Financial and non-financial corporations
Corporations and unincorporated enterprises
– Ideally mixed income should be split into a return to the
labour provided by working proprietors and a return to capital

Private and public sub-sectors for corporations
33
Recommendations regarding profit ratios




Profit margin type ratios using output as the denominator
should not be compiled at the macro economy level.
Rates of return and profit shares should be calculated net
of consumption of fixed capital, unless COFC estimates are
seriously deficient.
Net operating surplus should be used as the numerator if
rates of return are being calculated at an industry level.
Otherwise, net operating surplus or entrepreneurial income
may be used as the numerator for both rates of return and
profit share measures.
34
Recommendations regarding profit ratios
(cont)



For rate of return measures the net capital stock
should be defined to include produced assets
and inventories.
For profit share measures various ratios may be
calculated depending on the analyses being
undertaken.
If a pure profit share measure is required, the
variables in both the numerator and denominator
should relate to the institutional sector(s) for
which the ratio is being calculated.
35
Recommendations regarding profit ratios
(cont)



Recommendation 8: The ratio of net operating surplus
divided by net factor income for the non-financial
corporations sector should be one of the profit share ratios
included in OECD Statistical Databases (including the
Statistical Annex of the OECD Economic Outlook). Other
profit share ratios should also be considered for inclusion.
Table 9 provides profit share ratios for non-financial corporations
using data from the OECD annual SNA93 database
Country views are welcome on the most appropriate profit
ratios for inclusion in OECD Statistical Databases
(including the Statistical Annex to the Economic Outlook)
36