Economic Research Papers on Government Accounts
Debunking the Relevance of the Debt-to-GDP Ratio
Arturo C. Porzecanski
, World Economics, March 2018
Historical experience does not confirm the simplistic notion that the heavier the burden of the public debt relative to GDP, the greater is the risk that governments will encounter debt-servicing difficulties. In 25 government defaults that occurred during 1998-2017, the pre-default debt-to-GDP ratios ranged from a very low of 27% (Ecuador in 2008) to a very high of 236% (Nicaragua in 2003), with a sample median of 79%. As ratios of government debt rise, some societies manage to deliver more responsible fiscal behaviour. Low debt ratios, on the other hand, often mask dangerous currency or maturity mismatches, as well as contingent liabilities, capable of suddenly impairing banks and governments. The demand for government bonds can behave unpredictably, and governments with low or high debt ratios can suddenly find themselves cut off from needed financing. Official institutions like the IMF, European Commission, and World Bank have done themselves and their member states a great disfavour by obsessing about debt ratios which do not predict fiscal outcomes.
Measuring the Share of Labour in GDP
, World Economics, December 2017
There is a view that increasing inequalities in advanced economies are responsible for growth problems and political polarisation. A new impetus has been injected into the analysis of macroeconomic income distribution since if capital’s share is rising this has implications for the personal distribution of income. An international comparison of data from advanced countries does not reveal any widespread or consistent decrease in labour’s share for the past quarter of a century. No pattern is discernible and a number of statistical limitations and data issues need to be taken into account when interpreting the functional distribution of income.
Analysis of Revisions in Indian GDP Data
& Rajeswari Sengupta
, World Economics, December 2017
This paper studies constant price growth estimates of India’s annual GDP data in order to understand the revision policy adopted by the Central Statistics Office. The use of high-frequency indicators to prepare initial estimates overstates the growth of the economy, although at the aggregate level the difference between initial estimates and final revisions is low. At the sectoral level the extent of revision for almost all sectors is large and the magnitude and direction of the revision is unpredictable. The Central Statistical Office must address issues in data quality and revisions by (i) adopting a comprehensive revision policy, (ii) supplying information and data on high frequency indicators and (iii) adopting revision metrics to assess the quality of estimates.
Problem or Solution: Data on Sub-National Debt for Infrastructural Development in Nigeria
, World Economics, June 2017
Nigeria has witnessed a substantial rise in sub-national debt at the state level in an economy characterised by infrastructural decay and macro-economic imbalance. The mismanagement of sub-national debt in Nigeria has culminated in the inability of most states to meet their daily obligations. Secondary data sourced from the Central Bank of Nigeria and the Debt Management Office shows that external indebtedness of the states grew from US$2 billion to US$3.4 billion between 2010 and 2015, a rise of 68.4%. Sub-national debt has been identified as a conduit for embezzlement. A more sustainable approach to infrastructure financing should be the adoption of a public-private partnership (PPP) approach.
Data on Indicators of Governance: Handle with Care
, World Economics, June 2016
This article provides a select review of data used as indicators of governance. Despite the popularity and considerable success of the existing body of governance indicators in putting the spotlight on governance inadequacies in developing countries, they are fraught with a whole host of statistical and measurement issues. It argues that these indicators should be applied with caution, keeping their shortcomings in mind.
Measuring Financial Inclusion using Multidimensional Data
, World Economics, March 2016
The author notes that the lack of a financially inclusive system is a major concern not only for developing and low-income economies, but for many developed and high-income countries. At the global level, a network of financial regulators from developing and emerging economies, called the Alliance for Financial Inclusion (AFI), was formed in 2008 to provide a platform for peer-to-peer learning from the experiences of country specific policies of financial inclusion. The paper notes that there has been an intensive debate about how financial inclusion should be measured. In consequence, it recommends using the Index of Financial Inclusion (IFI), developed by the author. The IFI is multidimensional, it satisfies many important mathematical properties and can be used to compare levels of financial inclusion across economies and over time. IFI values computed for 110 countries for 2014 show various levels of financial inclusion: Chad ranked lowest with an IFI value of 0.021 while Switzerland had a value of 0.939. Measuring the IFI over 2004 – 2014 indicates a general improvement in the level of financial inclusion across countries, but the availability of data is the biggest constraint on its usefulness.
The Digital Revolution – New Challenges for National Accounting?
, World Economics, March 2016
The digital revolution has changed many industries, but measuring these changes from a national accounting perspective causes problems. Generally, in the transition periods during the introduction of new technologies, marked setbacks in the estimation of productivity growth are possible. Whereas new private goods are partly invisible in the national accounts because of measurement lags due to outdated accounting standards, more often only their negative substitution effects turn up in GDP measures. If this causes a market phenomenon it should be reflected initially in a weaker market production and productivity. In order to capture new private digital goods and their welfare effects a separate documentation of their introduction in a ‘satellite account’ is recommended.
Has Excessive Public Debt Slowed World Growth?
Anthony J Makin
, World Economics, December 2015
This paper contends that worldwide fiscal excess, as embodied in heightened public debt levels, is central to understanding why global growth has been sub-optimal since the transatlantic crisis. It notes that in the five years before the 2009-10 financial crisis average world economic growth was close to 5 per cent per year, but has since averaged only 3 per cent. The author states that government expenditure spiked notably more in advanced economies in response to the crisis and remains around 9 percent higher as a share of GDP in G20 advanced economies on average than in emerging economies. The paper explores recent literature which focused explicitly on the crowding out effects of fiscal stimulus in contrast to the Keynesian orthodox view. Attention is focussed on the impact of beneficial austerity on growth and also notes that additional government spending on infrastructure without regard to its productivity is risky.
Risk Exposures in International and Sectoral Balance Sheet Data
Philip R. Lane
, World Economics, December 2015
This paper outlines the opportunities and pitfalls for risk analysts in interpreting the information embedded in international and sectoral balance sheets. It places an emphasis on the different risks posed by net financial stock imbalances and the cross-holding of large stocks of gross financial assets and gross financial liabilities. It argues that it is important to supplement sectoral-level data with more disaggregated levels of data, in view of the importance of intra-sectoral financial linkages and the heterogeneity in portfolios and funding mechanisms within sectors. Finally, the growing internationalisation of financial balance sheets means that it is important to take a unified approach to the joint analysis of international and sectoral balance sheets.
Costing a Data Revolution
& Justin Sandefur
, World Economics, September 2015
The lack of reliable development statistics for many poor countries has led the U.N. to call for a “data revolution” (United Nations, 2013). One fairly narrow but widespread interpretation of this revolution is for international aid donors to fund a coordinated wave of household surveys across the developing world, tracking progress on a new round of post-2015 Sustainable Development Goals. We use data from the International Household Survey Network (IHSN) to show (i) the supply of household surveys has accelerated dramatically over the past 30 years and that (ii) demand for survey data appears to be higher in democracies and more aid-dependent countries. We also show that given existing international survey programs, the cost to international aid donors of filling remaining survey gaps is manageable--on the order of $300 million per year. We argue that any aid-financed expansion of household surveys should be complemented with (a) increased access to data through open data protocols, and (b) simultaneous support for the broader statistical system, including routine administrative data systems.
Measuring GDP in Europe
World Economics, June 2015
In Europe the quality of national income statistics is less constrained by the capacity and resources devoted by national statistics offices to follow international best practice than is the case in many other parts of the world. In addition the members of the European Union have to meet the harmonised standards of national accounting set by Eurostat which are based on the United Nations System on National Accounts. However, despite recent modifications both these standards fail to adequately record the size of the informal economy.
Measuring The Americas GDP
World Economics, March 2015
The Americas, comprising the USA and Canada, the Spanish speaking countries of South and Central America plus Brazil and the Caribbean, is a region displaying large differences in living standards. The availability of resources has an impact on the quality and reliability of economic statistics. Chile and Mexico, both OECD members, produce economic data that can be compared favourably with the USA, Canada and many European countries. In other countries out of date base years, outdated national income accounting standards and problems in recording the size of the informal economy mean that GDP figures are likely to be underestimated. The most insidious problem in the region arises from the political manipulation of economic data in Argentina which has led to a censure of the government by the IMF.
Measuring the Asia-Pacific Region
, World Economics, September 2014
The Asia-Pacific region covers the countries around the Pacific Rim, South East Asia, the Indian Sub-Continent and Oceania. It contains three of the world’s largest economies outside the US: China, India and Japan. The quality of economic statistics varies widely across the region mainly because of differences in the resources available to national statistical offices in the large number of poorer countries. There are other data problems affecting inter-country comparisons: the use of old standards of national income accounting; the degree to which shadow and informal economies are under-recorded; and the use of outdated base years for the calculation of real GDP. On top of these issues is the continuing question about the extent to which China’s economic data is subject to political manipulation.
Data Manipulation of Inflation Statistics Artificially Raises Real GDP: The Case of China
, World Economics, June 2014
Baseline Chinese economic data are unreliable. Taking published National Bureau of Statistics China data, three problems appear. First, base data on housing price inflation are manipulated. Second, the NBSC misclassifies most Chinese households as private housing occupants. Third, the NSBC applies a straight 80/20 urban/rural private housing weighting. To correct for these manipulative practices, I use third party and related NBSC data to correct the change in consumer prices in China between 2000 and 2011. I find that using conservative assumptions about price increases, the annual CPI in China should be adjusted upwards by approximately 1%. This reduces real Chinese GDP by 8–12% or more than $1 trillion in PPP terms.
Measuring Latin America
, World Economics, March 2014
This paper reviews the quality of official national accounting data investigated for 17 Latin American countries. Chile, which became an OECD member in 2010, stands out as a producer of the most reliable economic data and can be compared favourably with the USA and many European countries. The most significant data problems are the use of old standards of national income accounting, the use of outdated base years and the degree to which the shadow economy is underrecorded. In Argentina there is the additional problem that official published economic data has been subject to much interference in order to downplay inflation while reporting higher real national income and lower poverty data. A simple exercise is undertaken to estimate what the size of Latin American GDP might be if most countries updated their base years to 2012.
Measuring Argentina’s GDP Growth: Myths and facts
, World Economics, March 2014
The main purpose of this paper is to report on the results of an exhaustive reworking of Argentina’s output growth by industry realized by the ARKLEMS+LAND Argentina Productivity and Competitiveness Project. The aim was to reproduce a GDP time series since 1993 using traditional Argentinean national accounting methodology in order to check economic growth against official statistics produced after political intervention in the work of the National Statistics institute since 2007. The reproduced ARKLEMS GDP series closely approximates to official GDP between 1993 and 2007 at macro and industry level. But after 2007, Official series showed a higher growth than ARKLEMS reproducible (29.4% Official GDP vs. 15.9% ARKLEMS GDP for 2007–2012). However, the gap between the series is not related to the use of biased CPI deflators, but it is due to the abandoning of traditional methodology followed by Argentinean national accounts prior to its intervention. The paper shows that Argentina’s recent growth episode of 2002–2012 was similar to the previous positive growth cycle period of 1990–1998. Argentina was not the growth champion of the Latin America region during the later period, but it has one of the highest rates of volatility of GDP across Latin America. Argentine official GDP data has been subject to the so-called ‘Pandora’s Box’ effect as a result of the political intervention in the production of official statistics.
Are National Accounts Revisions Harmful for Historical Comparisons?
& Michael Grömling
, World Economics, December 2012
Revisions of national accounts affect economic analysis, calling into question theoretical findings based on earlier data. Revisions to German national accounts have resulted in a markedly higher GDP in absolute terms and a lower volatility in macroeconomic production. According to the revised data, recessions have been less pronounced. Moreover, less volatility in production has changed income accounts and, above all, reduced the fluctuations in property and entrepreneurial income. The stylised fact of declining property and entrepreneurial incomes during recessions in West Germany from 1970 to 1991 has vanished into thin air as a result of the revisions of 2002 and 2006.
America’s Dangerously Opaque Public Accounting Systems
, World Economics, March 2012
The current global economic crisis has highlighted the problems that result from governments’ archaic and erroneous accounting practices. The Financial Report of the United States Government is scrutinised with the same pedantry that an auditor or long-term investor uses when studying the financial statements of a listed company. What emerges is an all too clear picture of the extent and the root of America’s economic crisis. USA Inc. is found to have a net worth of minus $44 trillion, a symptom of unfunded liabilities that have grown as entitlement expenditure has rocketed. As well as changes in policy, it is the external auditing of government accounts that is suggested as a potential panacea for this global epidemic.
Government Accounting: Making Enron look good
& Gary Pflugrath
, World Economics, March 2012
As the current sovereign debt crisis engulfing Europe broadens and threatens to bring down more governments and lead the world into another, potentially very serious, economic slowdown, minimal commentary and public debate has focused on a fundamental problem, and the need to address it. That problem is the deficient – and sometimes fraudulent – accounting practices employed by many governments around the world. A major shortcoming of many governments has been highlighted by the crisis – that is, the poor quality of public financial management and the lack of public accountability. And, while robust public-sector financial management would not alone solve the crisis, it is clear that the problems presented by the crisis will not be solved without it. Shareholders, debt providers and regulators of publicly listed companies would not tolerate for a minute the poor levels of reporting and disclosure evidenced by governments. Yet while governments recognise the need to impose stringent regulations on companies accessing funds from the public, many – indeed most – make little or no effort to meet such high standards in their own reporting. This is despite the fact that governments seek to raise hundreds of billions – indeed trillions – of dollars from the public. Improved financial reporting, disclosure and financial management of the public sector cannot be achieved until there is recognition that the incentives faced by politicians promote decision-making that works contrary to the public interest and appropriate institutional reforms are implemented.
Defence R&D Spending: A critical review of the economic data
, World Economics, March 2011
A nation’s defence R&D determines the international competitiveness of its defence industries and the technical superiority of its military forces. Whilst there is much secrecy, there are published data on defence R&D for many nations. Exceptions include China, Iran, Israel, North Korea, Pakistan and Russia. Defence R&D has led to rising unit costs of equipment and questions about the long-run affordability of some weapons. There are also external economic benefits but a lack of any measures of defence output. This article reviews what is known, what is not known and what is needed to be known for an informed debate and policy choices.
Keywords: Competitiveness, Costs, Defence, EU, France, Germany, Government spending, Innovation, Iran, Israel, Italy, Korea, Military, Pakistan, Russia, Skill development, Skills, Spain, Sweden, Technology, UK, Weapons, Weapons of mass destruction
It’s Time to Retire the US Military’s Retirement System
, World Economics, December 2010
The author outlines a retirement system for the most expensive government organisation in the world – the US military. The plan incorporates positive aspects of both defined benefit and defined contribution plans that cost less and are more valuable to service members than the current system, which was put into place in 1947. The paper uses previous studies that reflect service members’ ‘value’ of retirement pensions and US Department of Defense net present value assumptions to prove his case and demonstrate how the DoD can save tens of billions of US dollars, while increasing the value of the plan in the eyes of those who serve.
This paper builds on previous work done in 2006, when the author wrote a paper titled ‘Is It Time to Update the Army’s Retirement System?’. However, this paper focuses more broadly on the overall military retirement system and takes into account the changes that have occurred since 2006 regarding the general debate on retirement pensions, the macroeconomic conditions that have changed drastically in four years, the political reality of future government budget cuts (such as with the military retirement system), and the fact that anything related to military compensation being a target because US military benefits (primarily health care, pay, and bonuses) have increased steadily over the years since 2001.
Greek Economic Statistics: A Decade of Deceit: So how come the rating agencies missed it again?
, World Economics, June 2010
This paper looks at the recent problems in official Greek economic data on public finances, whose reliability has been impaired by inappropriate accounting methods, the application of poor statistical methods and deliberate misreporting. Data on deficits and debt have been misleading from before Greece’s eurozone entry, but despite a regular supply of public information about the problems, the rating agencies did not respond by downgrading Greek public debt until it was too late. These agencies reacted to, rather than leading, market tends that were already under way. The issue casts doubt on the fitness for purpose of the European Statistical System where the powers of Eurostat, the statistics arm of the European Commission have been inadequate to effectively monitor the fiscal status of eurozone countries. These powers, at present limited by the principle of subsidiarity to administering a Code of Practice, must be strengthened closer to approximating a power of audit.
International Comparisons of GDP: Is there an alternative to PPPs to obtain real GDP estimates?
, World Economics, September 2008
The recent publication by the World Bank of PPP-GDP estimates for 2005, referred to 146 countries, seems a good occasion to reopen the long-standing debate on the use of Purchasing Power Parities. While theoretical speculations on the subject have continued, no estimates were supplied for more than a decade. The author’s alternative method for GDP estimation is based on inflationadjusted long-term exchange rates, where real GDP estimates are obtained through simultaneous equations. He describes the method in the light of his experience and compares its results for 100 countries with both ICP estimates and GDPs at exchange rates.
Some Proposed Methodological Developments for the UK Retail Prices Index
, World Economics, March 2003
The Retail Prices Index (RPI) is one of the UK’s most important macroeconomic
indicators, as well as being used for indexation/adjustments for inflation
to wages and benefits. This paper argues that the dynamic changes in product
markets and consumers’ responses to price changes need to be incorporated into
the RPI if it is to effectively measure changes in the cost of living. The quite
positive and innovative work undertaken by the Office for National Statistics
(ONS) is acknowledged. However, the basis of the RPI, in measuring the price
changes of a matched, fixed basket of goods, is considered inappropriate to
modern markets. Some proposals are made.
Keywords: Britain, British, Cost of living, CPI, Hedonic regression, HICP, Inflation, ONS, Prices, RPI, RPIX, UK, Wages
Wanted: Measures of Economic Change
, World Economics, June 2001
Economic growth may involve change, but there can be change without
economic growth insofar as outputs of some products or employment in some
regions or industries grows while there are equal decreases elsewhere. National
accounts data do not reveal such shifts, yet they may involve investment and
disinvestment, require the acquisition of new skills and cause changes in the
location of economic activities. Some simple examples are provided,
demonstrating that the rate of growth and the pace of change are by no means
perfectly correlated. Hence separate measures of change are required if we are to
understand what is happening in the economy.
Extending the UK National Accounts: What can be done?
, World Economics, March 2000
The national accounts measure economic activity. The UK is developing "satellite accounts" which use the framework of the national accounts but aim to quantify other aspects of living standards. This article starts by comparing satellite accounts with the use of indicators to measure the quality of life. It then reports on progress with the UK environmental accounts, and with the household accounts, which measure the productive unpaid work done in the home. It concludes with a discussion of the scope for developing a wider range of satellite accounts for the UK.