Depreciation in EU Member States
Bernd Görzig
Bernd Görzig9.6.2005
EU 6th Framework Programme
Overview
Introduction Depreciation in EU countries Measurement of depreciation Impact of service life assumptions Conclusions
Bernd Görzig9.6.2005
EU 6th Framework Programme
Introduction
CFC ratio: Depreciation / Net domestic product (NDP) at
factor costs CFC ratios in EU member states differ
between 11 % in Greece, and 24 % in Finland
Bernd Görzig9.6.2005
EU 6th Framework Programme
10 15 20 25 Depreciation Ratio in %
Greece
Ireland
UK
Spain
Italy
Sweden
Luxembourg
France
Belgium
Austria
Netherlands
Germany
Denmark
Portugal
Finland
Depreciation in NDP*
* At factor costs
EU15
Bernd Görzig9.6.2005
EU 6th Framework Programme
Economic Theory suggests:
Production Functions Demographic and
geographic factors Mountainous or flat,
shape and borders, population density and composition, institutions, culture, a. o.
Market Structures Monopolised
markets Protected output
markets, Input markets (labour,
capital), institutional settings, a. o.
Economic specialisation Heavy or light industries, small and big countries, intensity of
use, a.o.
Bernd Görzig9.6.2005
EU 6th Framework Programme
Selected Indicators and CFC Ratio
DimensionIndicator
Sources: German Statistical Yearbook for Foreign Countries ; Calculations of DIW. -
except EU 15FinlandGreeceTotal
-0,06-0,080,00km²Area0,04-0,16-0,05million personsPopulation0,270,020,11per km²Population density
-0,320,04-0,18% of EmploymentUnemployment-0,23-0,35-0,09% of GDPShare of manufacturing0,340,290,19% of GDPShare of Services0,380,250,21% of GDPInvestment0,25-0,010,201000 PPP per capitaGDP per head0,12-0,110,051000 PPP / labour forceLabour force productivity
-0,77-0,59-0,73Oper. Surplus / WagesIncome distribution
Bernd Görzig9.6.2005
EU 6th Framework Programme
10
12
14
16
18
20
22
24
CF
C / N
DP
Rati
o %
50 55 60 65 70 75 80 85 Share of Services in GDP - %
Depreciation and Services
EU15
Coefficient of Correlation with CFC ratio: + 0.19Excluding Finland: + 0.34Greece: + 0.29
I
B
FIN
P DK
D
NLA
IRL
L
GR
GB
E
S F
Bernd Görzig9.6.2005
EU 6th Framework Programme
10
12
14
16
18
20
22
24
CF
C / N
DP
Rati
o %
0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 Profit - Wage Ratio
Depreciation and Income Distribution
EU15
Coefficient of Correlation with CFC ratio: - 0.73Excluding Finland: - 0.77Greece: - 0.59
F
D
BNL
FIN
E
A
IRL
S
GR
DK
L
P
GB
I
Bernd Görzig9.6.2005
EU 6th Framework Programme
Possible Impact of Depreciation Differences
GDP CFC is part of value added for non-market
producer Political implications
Operating surplus (incl. mixed income)
Changes with CFC Analytical implications
Bernd Görzig9.6.2005
EU 6th Framework Programme
-6 -4 -2 0 2 4 6 Impact on GDP %
GreeceIreland
UKSpain
ItalySweden
LuxembourgFrance
BelgiumAustria
NetherlandsGermanyDenmarkPortugalFinland
Assessment for non-market activities
Percentage change of GDP with same CFC ratio in all countries
Bernd Görzig9.6.2005
EU 6th Framework Programme
Assessment for market activities
Percentage change of Operating Surplus with same CFC ratio in all countries
-20 -10 0 10 20 30 Deviations of Oper. Surplus %
Greece
Ireland
UK
Spain
Italy
Sweden
Luxembourg
France
Belgium
Austria
Netherlands
Germany
Denmark
Portugal
Finland
Bernd Görzig9.6.2005
EU 6th Framework Programme
Results
Some differences in CFC ratios of EU member states might be explainable
However: Measurement differences cannot be
excluded
Bernd Görzig9.6.2005
EU 6th Framework Programme
Differences in CFC Measurement
Sources Depreciation Capital stock Service lives
Service lives: degree of differentiation Service lives: comparisons Models Depreciation schedule
Bernd Görzig9.6.2005
EU 6th Framework Programme
Sources of Depreciation
Direct observation (only Ireland, some new member states)
Gross or net capital stock (most countries)
Bernd Görzig9.6.2005
EU 6th Framework Programme
Sources of Capital Stock
Direct observation Survey (mainly new member states) Administrative register
Perpetual inventory method Model based
Discard function (most countries) BEA model (2 countries)
Survey based BFA approach (some new member states)
Bernd Görzig9.6.2005
EU 6th Framework Programme
Service Lives: 12 years instead of 10 years, is that important?
In general a 20% increase in service life leads to:
Capital stock: + 20 % Depreciation - 20 %
In Germany total economy 2001: Net operating surplus + 14%, but Rate of return on net stock - 8 %
Bernd Görzig9.6.2005
EU 6th Framework Programme
Service Lives: Sources
Tax register Experts’ advice Survey Other countries estimate
Bernd Görzig9.6.2005
EU 6th Framework Programme
Service Lives: Breakdown of estimates
Asset breakdown for Service Lives ranges from
AN classification (mainly: 4 tangibles, 3 intangibles) to
> 400 types of asset Additional industry breakdown
Applied by many countries for calculating capital stock
Rarely with specific Service Life for the particular industries
Bernd Görzig9.6.2005
EU 6th Framework Programme
Service Lives: Difficulties of comparisons
Role of Service Life in geometric depreciation is different from the linear case
Comparison possible only for specified assets
Bernd Görzig9.6.2005
EU 6th Framework Programme
Comparison of Service Lives
25-60
13-40
³ OECD (1993). -
1avg = weighted average over all assets. - ² UNECE (2004). -
equipmentOther
equipmentTransport
BuildingsOther
DwellingsCountry
15-25 8-25 30-40 60Belgium²13(avg)14(avg)50(avg)-5975Denmark² 5-27 6-25 20-7050Finland² 9-21 7-15France²
5-30 13(avg)
8-25 11(avg)
15-15040-95
74 (avg) Germany²
10-20 4-33 66-100Greece² 18-28 10-15Italy² 5-45 8-25 35-6075Netherlands²
1710 40-6538Spain² 10 - 40 2 - 35 25 - 80 75 Sweden³ 8 - 32 10 - 30 16 -100 100 UK³
Bernd Görzig9.6.2005
EU 6th Framework Programme
What have we learned?
Variety of methods, but Are we able to
Quantify their impact on depreciation? Separate between
Economic and Methodological influences?
Separate between the various components of the applied methods?
Separate the impact of the underlying service life assumptions?
Bernd Görzig9.6.2005
EU 6th Framework Programme
The Inverse PIM Model (InvPIM)
PIM Input:
Investment time series
Estimate for the average service life
Output: Depreciation Capital stock
InvPIM Input
Available depreciation figures
Available investment figures
Output Service life estimate Necessary additional
investment
Bernd Görzig9.6.2005
EU 6th Framework Programme
Results of InvPIM
Good adaptation for most countries Not plausible results need
Additional research Better and more investment data
Bernd Görzig9.6.2005
EU 6th Framework Programme
Service Life Estimates by InvPIM
LifeService
ExpectedAverage
before 1985Growth
Investment
Country
found.Source: DIW Calculations. - "." No solution
years%672Austria242Belgium13.Denmark246Finland579France330Germany296Greece188Ireland323Italy194Luxembourg208Netherlands14-2Portugal254Spain18.Sweden252UK
Bernd Görzig9.6.2005
EU 6th Framework Programme
Best results of InvPIM
50
60
70
80
90
100
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationSpain
14
16
18
20
22
24
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationFinland
Bernd Görzig9.6.2005
EU 6th Framework Programme
Worst results of InvPIM
140 150 160 170 180 190 200 210 220
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationDenmark
200
220
240
260
280
300
320
340
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationSweden
Bernd Görzig9.6.2005
EU 6th Framework Programme
High Service Lives in InvPIM
150
160
170
180
190
200
210
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationFrance
22
24
26
28
30
32
euro
1993 1995 1997 1999 2001
Estimated Original
DepreciationAustria
Bernd Görzig9.6.2005
EU 6th Framework Programme
10
12
14
16
18
20
22
24 C
FC
/ N
DP
Rati
o %
10 20 30 40 50 60 70 Estimated Average Sevice Life - Years
Depreciation and Service Lives
EU15
Coefficient of Correlation with CFC ratio: - 0.06
Excluding Finland: - 0.06Greece: - 0.03
NLD
FIN
E
A
IRL
S
GR
DK
FL
UK
I
P
B
Bernd Görzig9.6.2005
EU 6th Framework Programme
Conclusions
CFC ratios in European Economies vary considerably
No unique explanation possible Impact of Service life assumptions seems to be
overestimated More research in the impact of
methodological differences necessary
Bernd Görzig9.6.2005
EU 6th Framework Programme
Questions for the consortium
Can we change national depreciation figures?
How is the movement of assets between industries considered?
Depreciation in EU Member States
Bernd Görzig
Thank you for listening