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Chapter X DEFINITIONS OF INCOME (Conceptual issues, definitions in use and recommendations)

Chapter X DEFINITIONS OF INCOME (Conceptual issues, definitions in use and recommendations). X.1 Income as factor rewards and as source of consumption spending X.2 Relationship between income and expenditure X.3 Individual versus Household Incomes

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Chapter X DEFINITIONS OF INCOME (Conceptual issues, definitions in use and recommendations)

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  1. Chapter X DEFINITIONS OF INCOME (Conceptual issues, definitions in use and recommendations)

  2. X.1 Income as factor rewards and as source of consumption spending • X.2 Relationship between income and expenditure • X.3 Individual versus Household Incomes • X.4 Shadow Income and the non-observed economy • X.5 Various income concepts and relationships between them – • X.6 Subsidies, preferential tax treatment and income measurement • X.7 Definitions in use, and recommendation

  3. X.1 Income as factor rewards and as source of consumption spending • Most statistical for agriculture interpret income as the mix of reward to the fixed factors of production used in production (NVA, Entrepreneurial Income etc.) • The Handbook is concerned with the total and disposable income of the households as institutional unit, available for consumption and saving/investment. • As such, income includes more than profit from agricultural production

  4. X.2 Relationship between income and expenditure • Disposable income is “.. the maximum amount that a household or other unit can afford to spend on consumption goods or services during the accounting period without having to finance its expenditure by reducing its cash, by disposing of other financial or non-financial assets or by increasing its liabilities.” (SNA93 para 8.15).

  5. X.2 SNA approach to disposable income Main items • Income from self employment (agric+ other) • Imputed rental value of owned dwellings • Wages and salaries • Income from property (rents, interest etc.) • Social benefits • Other current transfers • Taxation and social contributions (-ve) • Other current (-ve) transfers • Social benefits in kind

  6. X.3 Individual versus Household Incomes • Income measurement often on basis of individuals within the household • Policies need to know how this income is shared in the household • Intra-household transfers particularly significant in LDCs • What determines household utility?

  7. X.4 Shadow Income and the non-observed economy

  8. X.5 Various income concepts and relationships between them • X.5.1 Extended and Full Incomes, • X.5.2 Lifetime income and permanent income hypothesis, • X.5.3 Incomes within accounting systems – total resources, total income, disposable income etc. • X.5.4 Importance of time (capital gains and income?)

  9. X.6 Subsidies, preferential tax treatment and income measurement • X.6.1 Concept of a subsidy • X.6.2 Subsidies within agricultural income measurement systems • X.6.3 Which other subsidies might be considered? • X.6.4. Capital taxation on transfer of property

  10. X.6 Subsidies, preferential tax treatment and income measurement Key point – accounting systems and income indicators do not capture all subsidies that determine the ability of household to consume • Example – way that farm real estate is treated in capital taxation

  11. Recommendation • The Handbook recommends the simplified definition of Disposable Income (as shown in following table) for application to income measurement of agricultural households

  12. X.7 Definitions in use • Eurostat’s IAHS statistics (close to SNA93 definition) • Includes transfers between households sectors and other sectors, and between agricultural households and other household sub-sectors) • Canberra Group recommendations • Full specification and simplified definitions of disposable income • Avoids most non-cash items (including imputed income from owned-dwellings) • Not tailored to agricultural usage

  13. Why not take Canberra as it stands? • Income in kind may be particularly large in farming, and needs specific treatment (an amplification rather than an addition) • Imputed value of Owner-dwellings is found to be significant in some countries, and a methodology for valuation is often present (an addition) • Detailed tabulation enables compatibility to be achieved with Canberra

  14. Net income from self-employment (money income and in kind) (agriculture / other) • Imputed rental value of owned dwellings • Cash wages and salaries • Rent received (net) (property, land) • Other property income (interest + dividends) • Social transfers received (cash) • Other current inflows (regular) • = Total Income • Current taxes on income and wealth • Non-discretionary social contributions • = Net Disposable Income

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