Territorial Adjustments in Government Transactions

BEA Government Statistics Users Conference, Sep. 14, 2006

Benyam TsehayeEconomist, Federal Branch

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Topics To Be Covered

Territorial adjustments Aggregate economic measures Definition of the United States The conceptual problem Proposed treatment Project status and implementation

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Territorial Adjustments

One type of adjustment made to source data in preparing NIPA measures is known as the “territorial or geographic adjustment”

Transactions between the economic agents in the U.S and the “territories”

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Territorial Adjustments

“Territories” refer to -The U.S. Territories

∙U. S. Virgin Islands∙Guam∙American Samoa

-The Commonwealth of Puerto Rico

-The Commonwealth of Northern Mariana Islands

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Territorial Adjustments

This presentation is primarily about transactions between the U.S. Government and the territories.

Social insurance programs Federal grant programs

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Aggregate Economic Measures

National Income Product Accounts (NIPAs)

-integrated set of economic accounts -show the composition of production

and distribution of income earned in production- Examples: Gross Domestic Product (GDP), Gross Domestic Income (GDI), Personal Income and Personal Saving

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Aggregate Economic Measures

GDP vs. GNP

GDP is the featured measure of production in the U.S.-production by labor and property located in the

U.S. -consistency with other key economic indicators

-international comparability

GNP measures production by labor and property supplied by U.S. residents in or outside the U.S.

Definition of the United States is needed

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Definition of the United States

Source data used may employ different definitions

International Transaction Accounts (ITAs) and NIPAs.

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Definition of the United States

International Transaction Accounts (ITAs) vs. NIPAs-ITAs emphasize customs and therefore view the U.S. territories as part of the U.S.-NIPAs, most source data traditionally cover the 50 States and the District, and view the U.S. territories as part of the rest of world

Coverage of the U.S. territories is not consistent

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Conceptual Problem

In a system of integrated accounts,-sectors-double-entry accounting

It is imperative that boundaries, flows and their measurement be defined consistently in order to make the measures that are generated meaningful.

Hence a single definition of the economic boundary of the United States ought to be used.

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Conceptual Problem

There are pros and cons to either definitions (ITA vs. NIPA)

However adjusting either definition would be a major project

Instead, this presentation deals with a narrower issue of consistently estimating NIPAs within current geographical scope

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Conceptual problem

Social benefits received by residents of the territories ought to be excluded from NIPA personal income

One of the coverage adjustments used to achieve that is to exclude transactions with the territories from Federal source data

This leads to a slightly misleading picture of Federal government transactions and fiscal balances

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Conceptual Problem

Social Security paid $493.1 billion to beneficiaries in 2004 (source: Social Security Administration):

U.S. territories, $5.2 billionForeign, $2.7 billion Domestic, $485.2 billion

In the NIPAs,-Gov. social benefits to persons ($485.2)-Government social benefits to the rest of

the world ($2.7) Payments to the territories ($5.2) are not

counted

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Proposed Treatment

Recognize these transactions as flows between the U.S. Government and rest-of-the-world in the 2008 Comprehensive Revision of the NIPAs.

The “territories” will continue to be part of the “Rest-of-the-World” sector from the NIPA point of view.

The transactions between residents of the “territories” and the Federal Government will be recognized as Federal receipts and expenditures.

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Proposed Treatment

Treatment will be in line with the current treatment of transactions between the private sector of the U.S. economy and the “territories.”

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Progress Report

The research team:

- Identified the main NIPA series and tables affected

by implementation of the proposal

-Identified sources to allocate territorial adjustments to transaction types—grants, social benefits, etc.

-Will concentrate on refining historical data and examining implications to NIPA tables and series

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Effect of Proposal

If the proposal is implemented as presented today:

NIPA table 3.2 (Federal Receipts and Expenditures) would be affected, mainly those series related to Social Insurance Programs

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Effect of Proposal

Territorial Adjustments, billions of dollarsCalendar years, Pre AR2006

1970 1980 1990 2000 2004

Current Receipts 0.3 1.3 2.0 3.5 3.7 Contributions for gov. soc. Ins. 0.2 1.0 1.9 3.4 3.6 Miscellaneous Receipts 0.0 0.3 0.1 0.1 0.1

Current expenditures 0.6 3.7 7.0 9.4 10.7 Social benefits to persons 0.3 2.5 4.4 6.5 7.5 Grants to S&L gov. 0.3 1.1 2.5 2.8 3.1 Subsidies 0.0 0.1 0.2 0.1 0.1

Effect on net saving (Federal) -0.4 -2.4 -5.0 -6.0 -7.0

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Plan and Contact Information

The research team plans to incorporate the change in the upcoming comprehensive revision(2008) of the NIPAs.

Please forward comments and questions to

Benyam Tsehaye Tel. 202-606-9791e-mail

benyam.tsehaye@bea.gov