EUROSTAT
Directorate E: Social and regional statistics and geographical information system
Unit E-2: Living conditions /
Doc. HBS/2000/126/00
Expert Group Meeting
Household Budget Surveys
13 December 2000
Bech Building - Room B2/464
Agenda item VI
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Markku Lindqvist
Senior Researcher
Social Statistics
Measurement of government’s individual consumption on education, and health and social services - Finnish experiences
- Introduction
Households’ actual individual final consumption (AIFC) consists of two main elements: (1) households’ final consumption expenditure (HFCE) and (2) the part of government consumption (individual consumption) that is directed to individual households, i.e. social transfers in kind. Social transfers in kind are normally the welfare services (and goods) for households, provided by government units or non-profit institutions serving households (NPISH), which are free or extensively subsidised, such as educational, health and social services (and goods). In Household Budget or Family Expenditure Surveys we have generally been able to measure households’ final consumption expenditure (1) only, and government’s individual consumption (2) has usually been omitted. However, government’s individual consumption has a significant re-distributive effect, both on the consumption and income of household.
- The concepts and definitions
2.1 Consumption expenditure
In Diagram 1 the elements of individual consumption are presented in the first row. In order to measure private households’ “real” consumption better, a broader consumption concept than HFCE should be used. In other words, the individual part of government (and NPISH) consumption, i.e. social transfers in kind, should also be included in household consumption.
Diagram 1. Individual and collective consumption
Sector making expenditureGovernment / NPISHs / Households / Total acquisitions
Individual consumption / X
(= Social transfers in kind / X
(= Social transfers in kind / X / Households’ actual individual final consumption
Collective consumption / X / 0 / 0 / Government’s actual collective final consumption
Total / Government’s final consumption expenditure / NPISHs’ final consumption expenditure / Households’ final consumption expenditure / Actual final consumption = Total final consumption expenditure
Source: Eurostat, 1996
Government’s collective consumption, for its part, consists of:
-Management and regulation of society
-Provision of security and defence
-Maintenance of law and order, legislation and regulation
-Maintenance of public health
-Protection of the environment
-Research and development
-Infrastructure and economic development
To value the benefits individual households derive from government’s collective spending would be very difficult because of the collective nature of the services and goods involved. How much does a household or an individual person benefit from government spending on national defence, road construction or from watching a statue in a park?
2.2 Income
The households’ actual total consumption concept has as its equivalent the identical household income concept, a concept that also takes into account the benefits households derive from the use of welfare services provided for them by the government, either free or at prices that are not financially significant. The “old” definition of households’ disposable income, which the United Nations recommended (1977), should be applied in household surveys, has been in use in many countries right up to the present day. A new, revised income definition has been prepared by the so-called Canberra Group in recent years. According to the UN definition, households’ income can be divided into the following main sub-categories:
Diagram 2. The definition of disposable household income
+ / Wages and salaries+ / Entrepreneurial income
= / Earned income
+ / Capital income
= / Factor income
+ / Transfers received
= / Gross income
- / Transfers paid
= / Disposable income
Source: UN, 1977
However, to get a broader picture of households’ income, social transfers in kind should, again, be included in the income concept so that the effect of general government on the redistribution of income could be seen.
Disposable income + Social transfers in kind = Adjusted disposable income
The broader income concept facilitates comparisons between different household types within a country on the one hand and between countries on the other.
3.The significance of social transfers in kind
3.1 Macro-level approach
The re-distributive role of the government differs from country to country. In the EU, the share of private consumption as a percentage of GDP was the largest in Greece (73.1%) in 1995, whereas in Nordic Countries like Finland and Sweden the share of private consumption was about 50% of GDP, while the share of government consumption of GDP was the largest (27.1%) in Sweden (Eurostat, 1998).
Table 1. Household consumption in Finland in 1990 and 1998, FIM billion
1990 / 1998FIM / % / FIM / %
Households’ final consumption expenditure (HFCE) / 253,086 / 74.9 / 331,613 / 75.5
Social transfers in kind (Government’s individual consumption) / 84,779 / 25.1 / 107,841 / 24.5
Households‘ actual individual final consumption (AIFT) / 337,865 / 100.0 / 439,454 / 100.0
Source: Statistics Finland, 2000
Despite the deep economic recession in Finland in the early 1990s, when several budget cuts and saving programmes were carried out, the relative share of social transfers in kind seems to have remained constant about a quarter of AIFT, thereby making the share of private consumption, or HFCE, about 75%.
Because of the skewness of the distribution of social transfers in kind among households, certain household types are “heavy users” of welfare services in comparison with other households. Omitting the effect of government’s individual consumption from income (and consumption) distribution analyses results in considerable bias in estimates.
3.2 The micro-level approach
The first Household Budget Survey (HBS) was conducted in Finland in 1908-1909. A regular HBS system, covering all private households and based on probability sampling, was introduced in the mid-1960s. According to the latest HBS from 1998, the current structure of consumption expenditure is as shown in Table 2.
Table 2. Structure of total consumption expenditure in Finland in 1998, per cent
%01-12 / Total consumption expenditure / 100.0
01 / Food and non-alcoholic beverages / 13.6
02 / Alcoholic beverages and tobacco / 2.8
03 / Clothing and footwear / 4.5
04 / Housing and energy / 27.3
05 / Furnishings and household equipment / 4.5
06 / Health / 3.6
07 / Transport / 16.2
08 / Communications / 2.7
09 / Recreational and cultural services / 10.1
10 / Education / 0.2
11 / Hotels, cafes and restaurants / 4.0
12 / Miscellaneous goods and services / 10.5
Source: HBS 1998
The average amount households spend on education accounts for only 0.2% of their total consumption expenditure. However, this is not because households do not invest in education but because the school system is free to them. The nine-year comprehensive school (compulsory education), including the necessary books, other equipment and a hot meal daily, is free. Higher level education is also practically free, for there are normally no term fees, although students must purchase their books and other necessary equipment themselves. Universities charge no term fees, but students do pay health care contributions and student union membership fees. These are, however, not financially significant amounts.
The Finnish health system is based on publicly run health services, although there are also private clinics and hospitals. Municipal health centres are normally free or there is a minor fee. Hospital care in university teaching and other public hospitals is subsidised. The fees of private doctors, prescription medicines and other kinds of medical care and services are partly reimbursed by the national Social Insurance Institution.
The social sector is the third sector where extensive subsidised services are provided to households. Social services can be divided into three main groups: services for families with children, for aged population and for the handicapped. The statutory municipal daycare system, for example, requires that a place in a daycare centre be guaranteed for every child aged under three.
The use of welfare services and the benefits households receive were measured for the first time in the 1971 Household Budget Survey. The method applied then consisted of interviewing the households about their use of welfare services and then finding unit prices (values) for producing those services and goods. The benefit for the households is the difference between the unit production cost and the price the household actually pays for the service or good, the remainder. It is relatively easy to find “prices” from administrative authorities or statistical sources for some of the services and goods, but there are also problematic domains in respect of finding proper prices. Since the 1994 Survey, households have only been interviewed about their use of the services, but the pricing has been discontinued because of revisions to the compilation methods of statistics and especially health and social statistics.
The so-called welfare service nomenclature that has been used in the HBS consists of about 150 items at the most detailed level. The main levels are shown in Diagram 3.
Diagram 3. Social transfers in kind, main level nomenclature
1-4 / Social transfers in kind1 / Education
2 / Health
3 / Social services
4 / Subsidised housing loans
Source: HBS 1990
According to the 1990 HBS (Figure 1), use of education services was the most significant item for households. Almost one half of all benefits that were derived from government’s individual consumption related to the use of educational services.
Figure 1. Relative shares of social transfers in kind in Finland by main group of welfare
services in 1990
Source: HBS 1990
Figure 2 shows that low-income households benefit relatively more from government consumption than households with higher income do. The households in the first income quintile were able to “increase” their disposable income by almost 40% when social transfers in kind were taken into account, whereas the income of households in the highest quintile increased by eight per cent, on average.
Figure 2.Households’ disposable income, social transfers in kind and income increase percentage by income quintile in 1990
1) The quintile groups are formed according to the equivalent disposable household income (OECD
scale)
Source: HBS 1990
Figure 3 shows that different household types can benefit from social transfers in kind in a different manner. Families with children obviously benefit most from the use of both educational and social (daycare) services.
Figure 3. Households’ disposable income (per consumer unit, 1), social transfers in kind (2)
and income increase percentage (%) by household type in 1990
Source: HBS 1990
- Conclusions
On the one hand, the aggregate figures for government’s individual consumption (social transfers in kind) are obtainable from the national accounts system. However, the problem is how to allocate the benefits among the households. On the other hand, a micro-level approach is also possible, so that by interviewing households about the frequencies of i.e. at which they use different welfare services, and then pricing those services according to their production costs, it is possible to value the benefits households derive from the use of the services.
To improve international comparability, the starting point for the analysis could be the first alternative, i.e. the macro approach, but maybe combined with information from micro data. Developing a model for the allocation of national accounts data among households could be one possibility, and probably the most realistic alternative, that should be studied.
References:
Eurostat (1998): Final Household Consumption. Main results and detailed tables 1975-1995, Luxembourg.
Eurostat (1997): Household Budget Surveys in the EU, Methodology and recommendations for harmonisation, Luxembourg.
Eurostat (1996): European System of Accounts , ESA 1995, Luxembourg.
Statistics Finland (2000): National Accounts 1975-1998, Time series (in Finnish), Helsinki.
Statistics Finland (1992): Household Consumption Expenditure 1990 (English summary), Helsinki.
Statistics Finland (1988): HBS 1985, Use of Welfare Services, Helsinki
UN (1977): Provisional Guidelines on Statistics of the Distribution of Income, Consumption and Accumulation, New York.
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