Measuring the Government Sector of the U.S. Economic Accounts

Courtenay M. Slater and Martin H. David, Editors

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1998



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--> Measuring the Government Sector of the U.S. Economic Accounts Courtenay M. Slater and Martin H. David, Editors Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1998

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--> NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council. This study was supported by an agreement between the National Academy of Sciences and the National Science Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the organizations or agencies that provided support for this project. International Standard Book Number 0-309-06135-0 Additional copies of this report are available from: National Academy Press 2101 Constitution Avenue NW Lock Box 285 Washington, DC 20055 Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area). This report is also available on line at http://www.nap.edu Printed in the United States of America Copyright 1998 by the National Academy of Sciences. All rights reserved.

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--> COMMITTEE ON NATIONAL STATISTICS 1996–1997 NORMAN M. BRADBURN (Chair), National Opinion Research Center, University of Chicago JULIE DAVANZO, RAND, Santa Monica, California WILLIAM F. EDDY, Department of Statistics, Carnegie Mellon University JOHN F. GEWEKE, Department of Economics, University of Minnesota, Minneapolis JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon University ERIC A. HANUSHEK, W. Allen Wallis Institute of Political Economy and Department of Economics, University of Rochester RODERICK J. A. LITTLE, Department of Biostatistics, University of Michigan CHARLES F. MANSKI, Department of Economics, University of Wisconsin WILLIAM D. NORDHAUS, Department of Economics, Yale University JANET L. NORWOOD, The Urban Institute, Washington, D.C. EDWARD B. PERRIN, School of Public Health and Community Medicine, University of Washington PAUL R. ROSENBAUM, Department of Statistics, The Wharton School, University of Pennsylvania KEITH F. RUST, Westat, Inc., Rockville, Maryland FRANCISCO J. SAMANIEGO, Division of Statistics, University of California, Davis MIRON L. STRAF, Director ANDREW A. WHITE, Deputy Director

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--> Contents     Preface   vii     The System of National Accounts   1     The Role of Government in the Economy and the U.S. Economic Accounts   1     The Revised System of National Accounts   2     Recommendation   8     Implementing the System of National Accounts   10     Documentation of Changes   10     Reconciling Alternative Measures of the Government Sector   11     Consistency of Practice among Economic Sectors   12     Conclusion and Recommendation   15     Going Beyond the System of National Accounts   17     Expanded Measures of Public Investment   17     Measuring Productivity   20     Recommendation   21     References   22     Appendices     A   Participants, Workshop on Improving Economic Statistics   25 B   Papers Presented, Workshop on Improving Economic Statistics   28

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--> Preface This report had its origin in a Committee on National Statistics workshop in November 1993, one of a series on improving economic statistics, jointly sponsored by the Bureau of Economic Analysis (BEA) and the Bureau of the Census of the U.S. Department of Commerce. The focus of the workshop was on revising the presentation of the government sector in the U.S. economic accounts to bring it more into line with the international System of National Accounts (SNA) and current data collection capability, to enhance information about the public sector, and to make the U.S. accounts more comparable to those of other countries. The SNA guidelines treat government purchases of nonmilitary structures and equipment as capital investments and provide for a capital consumption allowance to be included in the estimate of government purchases of goods and services for current consumption. Prior to 1996 the U.S. accounts made no distinction between government purchases for current consumption and those for investment. The result was data that were inadequate for understanding the nature and value of government spending or for compiling a complete picture of investment for all sectors of the U.S. economy. Other differences between the government sector of the U.S. accounts and that of the SNA included the treatment of social insurance funds and government employee pensions and the definition and treatment of government enterprises. A paper prepared for the workshop by Timothy Dobbs (1993) of the Bureau of Economic Analysis presented the principal issues regarding implementation of the SNA guidelines for the government sector, including differences between the SNA and the then-current national income and product accounts treatment of

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--> government saving, consumption, and investment. A paper by Elizabeth Fogler, Sarah Holden, and Albert Teplin (1993) of the Federal Reserve Board focused on improving government balance sheets. These papers were intended to stimulate discussion on such issues as defining and valuing government assets; treatment of government enterprises, loans, loan guarantees, social insurance funds, and pension plans; and separating federal, state, and local government. The workshop served an important purpose of reviewing BEA research and providing feedback to BEA on its plans for modernizing the government sector of the national economic accounts. Subsequently, BEA implemented some of the changes discussed: most noteworthy, the 1996 comprehensive revision of the U.S. National Income and Product Accounts separated government spending into investment and current consumption. The workshop also served to stimulate the committee to develop further its work to improve the national economic accounts. In addition to continuing its own examination of the work of BEA, the committee has set up the Panel on Integrated Environmental and Economic Accounting, sponsored by BEA, to study the valuation of natural and environmental resources and the description of such resources in the context of the national economic accounts. This report has two purposes. First, although many of the issues discussed at the workshop in 1993 have led to changes in BEA's handling of the national economic accounts, it responds to the request of BEA and other officials for a formal record and reference document of that workshop. Second, in light of the improvements in the government sector in the national economic accounts that have been made, the committee wishes to stimulate consideration of others, such as estimating a return on government investment. We hope that this report will continue to contribute to the work of BEA and others as the agency seeks further to modernize the national economic accounts and implement the SNA. It is important to state that the recommendations contained in this report are those of the Committee on National Statistics, based in part on discussions that took place at a 2-day workshop held several years ago and on the papers prepared for the workshop. Although there have been developments since the workshop, the Committee chose to limit its considerations to the topics originally considered and has not revisited these issues—the report is being published at this time in order to have a historical record of the Committee's work on this topic. This report has been reviewed by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC's Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the authors and the NRC in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The content of the review comments and draft manuscript remain

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--> confidential to protect the integrity of the deliberative process. We thank the following individuals for their participation in the review of this report: Alan J. Auerbach, Department of Economics, University of California, Berkeley; Robert J. Gordon, Department of Economics, Northwestern University; Dale W. Jorgenson, Department of Economics, Harvard University; and Charles L. Schultze, Brookings Institution, Washington, D.C. Although these individuals provided many constructive comments and suggestions, responsibility for the final content of this report rests solely with the authoring committee and the NRC. We thank the many people who made the workshop and report possible. We are especially indebted to Martin David and Courtenay Slater for organizing the workshop and drafting the report. They were assisted by several members of the committee staff, who contributed both to the workshop and this report: Michele Conrad, Candice Evans, Betsy Huffman, Nancy Maritato, Anu Pemmarazu. We are also indebted to Eugenia Grohman, of the staff of the Commission on Behavioral and Social Sciences and Education, who edited the report. Finally, we thank the workshop participants and those who prepared papers for the workshop for their expert contributions to the work of the committee on this important topic. A list of workshop participants is in Appendix A; a list of the papers is in Appendix B. Norman M. Bradburn, Chair Committee on National Statistics

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