Statistical Issues in Measuring Poverty from Non-Survey Sources

NATIONAL ACCOUNTS

UN STATISTICS DIVISION Economic Statistics Branch

National Accounts Section

UNSD/NA/MR 1

Is poverty under or over estimated?

 Two sources of aggregate welfare data:  National accounts (NA)   Per capita Household final consumption expenditure (HFCE) Per capita Disposable income of households  Household surveys (HS)   Survey mean of consumption Survey mean of income  Is survey mean typically lower than per capita HFCE?

Income versus expenditure in the poverty concept



Consumption surveys are far better than income surveys for poverty measurement

 Households more willing to reveal their consumption rather than their income  Conceptualization of non-wage incomes  Recall periods

Some conceptual and measurement issues in National Accounts

 Disposable income  Household final consumption  Two concepts  Household final consumption expenditure  Actual final consumption of households

Comparability between NA and HS estimate of disposable income

    Recording of income of self employed persons Imputed rent of owner occupied dwellings Exhaustiveness adjustments Compilation of disposable income in NA ( Table 1.doc

)

+ + + + + +

Components of disposable income Contents covered in national accounts Estimation method

Compensation of employees Operating surplus Mixed income Property income receivable Withdrawals of income from quasi corporations Social benefits other than social transfer in kind Includes wages and salaries, payments in kind and employers’ social contributions to pension funds and other insurance schemes Incomes received by households from using their own dwellings Income left for own use to owners of household enterprises without business accounts after deducting from output intermediate cost of goods and services as well as depreciation and taxes on production Interest, land rent, dividends received and property income attributable to insurance policy holders imputed as received from pension funds Withdrawals of income for own use by owners of unincorporated enterprises but with full set of business accounts such as partnership Social security benefits in cash, private funded social benefits (pension benefits), unfunded social benefits by employers and social assistance benefits in cash Should be surveyed Should be surveyed in association with the estimation of the imputed rental value of owner occupied dwellings Should be surveyed in association with survey on household production Should be surveyed. Interest received should be adjusted to include financial service charges paid that had been already deducted from interest received. Property income attributable to insurance holders must be imputed on the basis of insurance held.

Should be surveyed Should be surveyed and or use of pension funds data

+ + Other current transfers in cash receivable Social transfers in kind Social contributions Property income payable Taxes on income Current transfers payable Net non-life insurance claims, current transfers from government, current transfers from relatives and others Individual final consumption of government and NPISHs [1] Contributions to social security fund, pension funds and other insurance schemes Interest and land rent paid Regular income, property and wealth taxes Net non-life insurance premiums paid and current transfers from relatives and others Should be surveyed and adjusted to exclude insurance service charges Imputed by analyzing government and NPISHs expenditure with regards to types of households that benefit Should be surveyed and compared with sources of data like government, pension funds and insurance companies Should be surveyed and compared with data from financial corporations and adjusted to exclude financial service charges, which are treated in the NA as final consumption. Should be surveyed and compared with data from government Should be surveyed and compared with data from insurance companies and adjusted to exclude insurance service charges

= Disposable income (adjusted)

Comparability between NA and HS estimate of household consumption

  HS provides information on household consumption at the lowest detailed level but HS can not be directly used for NA estimates   Conceptual adjustments Empirical adjustments

Conceptual adjustments

    Differences in definitions and concepts      Households production for own final consumption Services of owner occupied dwellings Income in kind Financial intermediation services indirectly measured Insurance and pension fund services Direct sales and purchases for business purposes National concept Diagram 1 ( Diagram 1.doc

)

Households expenditures based on Household budget survey

Adjustments for purchases of residents abroad and non residents on the domestic territory - national concept Household production for own final consumption Adjustments for direct sales and purchases for business purposes Services of owner occupied dwellings – imputed rentals Goods and services provided by employers - income in kind Other services -FISIM - Insurance and pension fund services

Household final consumption expenditure - national National accounts

Empirical adjustments

   Differential non-response  High income households  Exhaustiveness Data confrontation    Retail trade Enterprise surveys Others Diagram 2 ( Diagram 2.doc

)

Adjustments for differences in population - institutional households

Households final consumption expenditure based on National accounts

Adjustments for data confrontation Exhaustiveness adjustments for differential non-response Retail trade data Surveys of enterprises Others - Foreign trade data - Administrative data Adjustments for purchases for business purposes

Household final consumption expenditure National accounts estimate

Actual final consumption of households

   Shows who benefits from the consumption Main objective is to enhance comparability of households final consumption across countries and over different time periods Consists of :  Final consumption expenditure of households   Social transfers in kind from the Government Social transfers in kind from NPISHs

Relationships between the two concepts

Individual consumption General Government Sector making expenditure NPISHs Households X X (= Social transfers in kind) X (= Social transfers in kind) Collective consumption X 0 0 Actual final consumption Households actual individual final consumption Government actual collective final consumption Total final consumption Government final consumption expenditure NPISHs final consumption expenditure Households final consumption expenditure Actual final consumption = Total final consumption expenditure

International debate on non-compliance between NA and HS survey means  Why use national accounts data (Karshenas)?

 There is significant relationship between the two measures but it is not always the case that national accounts consumption would be lower than survey-based mean consumption   National accounts-based estimates appear to be more plausible in relation to other non-monetary indicators of poverty Calibration of survey means by using external NA based information as a scale factor for a removal of discrepancy

International debate on non-compliance between NA and HS survey means (cont.)  Why prefer household survey data (Deaton)?

 Designed to directly measure individual welfare  Yes, under-reporting/non-compliance problems, but probably produce more accurate measure of living standard of the poor  No sound basis for using mean from NA and distribution from household survey for calibration to remove differences.

Conclusions

   Discrepancy between NA and HS means has important implications for the analysis of poverty NA data even not used for direct estimation of poverty might be of particular help in case of:  Outdated HS data  Missing HS Practice of HS needs to be improved and harmonized

Thank You