How to improve the quality of the household saving rate within the ESA2010 framework

Filippo Gregorini()[1], Enrico Infante ()1, Maria Kozina ()1

Keywords:Accounting rules, national accounts, saving rate, household sector, unincorporated enterprises, interest.

1.Introduction

This article presents an adjusted measure of the saving rate of the household sector by attempting to identify and quantify the factors that might affect the saving rates of countries in different ways in order to create a measure which is more comparable across regions.Analysis of the saving rate and its implications for the wider economy are efficient for a comparable measure across regions, otherwise the persisting difference in the saving rate across regions can be explained by methodological causes. Disparities in household saving rates should adviseon the sustainability of an economic state rather than on the data consistency which may limit international comparability. Achieving a measure which is more comparable across countries is important for the reliability of the measure in analysing the economic state such as the availability of credit, finance, investments and finally economic growth. [1]

Empirical analysis, together with a discussion of different factors affecting the saving rate in European countries, had already been presented in [2].In light of recent developments, and following the introduction of ESA 2010 [3], in this paper the following issues are addressed:

(I)The role of NPISHs

National accounts are compiled in Europe following the European System of Accounts, ESA 2010. According to the ESA2010 Transmission Programme, the annual sector accounts data are collected for the actual households sector (S.14) as separated from non-profit institutions serving households - NPISH (S.15), but Eurostat is currently publishing the saving rate of S14_S15.

(II)The role of unincorporated enterprises

According to ESA2010, the households sector (S.14) includes employers (S.141) and own-account workers (S.142), consisting of the group of households for which the incomes accruing to the owners of household unincorporated enterprises from their activity are the largest source of income. Here difficulties relate to the allocation of producer units between non-financial/financial corporations (S.11 and S.12) and households (S.14) sectors, possibly resulting in artificially inflated figures for mixed income.

(III)The role of interest

A slight modification is made on interest in the calculation of gross disposable income and the saving rate. The treatment of interest in the calculation of the household saving rate in current national accounts methodology is on an interest basis net of the service part which will not capture the actual (bank) interest payments or receiptsincurred by households. Furthermore, a first attempt to highlight the significant impact of actual interest paid by households on the saving rate is made. [4]

2.Methods

The three topics introduced in the previous paragraph are here addressed separately, and the results are presented in the next section.

For NPISHs, analysis of new instruments available – new legal obligations – based on ESA2010, and indirectly SNA2008.

The new data are to be reported starting from reference year 2012. However derogations have been granted to five European Union Member States.

For unincorporated enterprises, statistical analysis based upon a specific Eurostat survey on Countries' approaches to delineation and measurement of quasi-corporations in national accounts, wasinvestigated by Eurostat. The results were then integrated by using information from a survey on the compilation of annual households current accounts conducted by the Eurostat/OECD Expert Group.The impact of the role of unincorporated enterprises on households' gross disposable income – via mixed income – is also discussed.

International manuals specify only general principles underlying identification of quasi corporations. From the theoretical point of view, it is not deemed useful to develop precise quantitative criteria for allocation of unincorporated units among relevant sectors. In practice, however, thorough examination of unincorporated units for their compliance with general theoretical principles underlying delineation of quasi-corporations would require excessive resources taking into account that detailed information on these units' activities and management practices is not easily accessible. Thus, reliance on certain simplified benchmarks in order to take account for practical constraints seems inevitable for the purpose of practical delineation decisions.

Regarding interest, the economic analysis is based on the allocation of transactions related to interest under the ESA2010 and SNA2008 frameworks, including a practical proposal for a newly calculated gross disposable income of households.

According to national accounts methodology, households' expenditure on interest payments is accounted for in households' individual consumption expenditure (P.31) in the calculation of the household saving rate. However, the actual payments or receipt, referred to as bank interest incurred by the households, to and from financial institutions in providing loans and accepting deposits, is not captured in the measure of gross disposable income (B6G) according to this current methodology.Households pay bank interest, and these charges are real and should be included.

3.Results

The results are shown in Table 1. In the first column the saving rate is calculated for households and NPISHs sectors together, as currently calculated by Eurostat and many statistical offices (mainly due to lack of data of the split between the two sectors); in the second column the same calculation is made for the household sector; in the third column gross disposable income has been calculated using D.41G instead of D.41; in the last column only D.41G Rec is considered for the calculation of gross disposable income, by adding D.41G Pay which includes households' expenditure on FISIM, therefore this component has been deducted from P.31.

Concerning the issue of unincorporated enterprises (II), the situation is more complex given heterogeneity between Member States in terms of both practical standards for the allocation of unincorporated enterprises and relevance of these. Is the value of households' mixed income influenced by the "broad" delimitation of S.14 in ESA2010 in EU Member States where a high share of workers are employed in Unincorporated Units?Mixed evidence emerges on this point: the effects of the broad delimitation of S.14 on the relevance of B3G within B6G components may depend also on the specific characteristics of unincorporated units within each country – number of employees, for example. Detailed information is needed to properly answer the question above beyond the use of indirect inference.

Table 1: "improved" saving rate of households (issues I and III)

Country / Households + NPISHs / Households / Households (D.41G) / Households (D.41G Rec)
Belgium / 11.69 / 11.76 / 9.38 / 16.09
Czech Republic / 11.81 / 12.00 / 9.96 / 14.24
Denmark / 10.51 / 10.71 / 8.81 / 16.07
Estonia / 8.77 / 8.79 / 6.98 / 10.16
Spain / 8.20 / 8.22 / 6.52 / 10.76
France / 14.14 / 14.50 / 12.88 / 17.19
Italy / 10.40 / 10.59 / 9.14 / 12.55
Latvia / -2.19 / -2.70 / -4.38 / -1.74
Lithuania / -1.85 / -1.75 / -2.66 / -0.57
Hungary / 9.63 / 10.05 / 7.47 / 12.90
Netherlands / 12.74 / 13.39 / 7.10 / 22.73
Slovenia / 14.80 / 15.04 / 13.78 / 15.96
Slovakia / 8.81 / 9.13 / 6.68 / 12.02
Finland / 6.74 / 7.27 / 5.96 / 8.84
Sweden / 18.65 / 18.68 / 16.39 / 21.93
Norway / 15.91 / 16.26 / 12.77 / 22.43
United States / 11.36 / 11.44 / 4.53 / 12.17

Source: Eurostat database - European Sector Accounts -, OECD database (United States figures)

Figure 1: Relevance of unincorporated units

Anonymized data from Eurostat survey

The correlation between the two series is +0.77.

Source: TF-QSA surveys & Eurostat NA, YYYY

4.Conclusions

A marked difference is observed in each adjustment of the saving rate of the "clean" household sector.The saving rates clearly differ in every step of the adjustment of the saving rate and for every country. Measurement changes from the first column to the second column in table 1 indicate the weight of NPISHs in the calculation of the saving rate versus a calculation reflecting the household sector only. Results in column three indicate the effect of adjusting disposable income for the actual interest incurred by households versus the current methodology which relies on amendments to interest by estimated values. Finally the adjustment performed in column four is an exercise to indicate the gross impact of interest on the household saving rate, as interest payments on loans, such as mortgages for an example, are concrete observations by households, and the decision to take a loan is based on the disposable income available before interest payments.

The NPISHs and interest issues can be addressed within ESA2010 and possibly implemented within the current national accounts framework. The issue of unincorporated enterprises mainly refers to countries' legislation; a proper assessment of the impact of the inclusion of unincorporated enterprises in the S.14 sector is the next step to "clean" the household sector – and its saving rate - in a more decisive way.

References

[1]StijnRocher, Michael H. Stierle, Household savingrates in the EU:Why do they differso much?,European Economy Discussion Papers, Discussion Paper 005 (September 2015).

[2]J. Verrinder, Saving rates in Europe, Statistics in Focus Theme 2 – 33/2002 (2002).

[3]European Commission, European System of accounts ESA 2010, European Union, Economy and Finance, Manual and Guidelines (2013).

[4]N. Curtis, National Accounts articles: Alternative measures of Real Household Disposable income and the Saving Ratio, ONS Article (December 2015).

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[1] Eurostat – European Commission