Consumption of Fixed Capital

1
Consumption of Fixed Capital

• NOE Meeting, OECD, Paris 2006

2
What is the issue?

• Consumption of fixed capital (CFC) is an
  important part of value added for Non-Profit
  Institutions Serving Household (NPISH) and for
  General Government
• Improving these estimates is not part of the NOE
  but it is important for the exhaustiveness of
  the national accounts

3
NPISH and Government

• NPISHs are insignificant in most OECD countries
  (Is this true in the West Balkan countries?)
• Governments own many capital assets, such as
• roads, bridges, dams, airports
• government buildings
• schools and hospitals
• and the equipment inside them
• The using up of these assets is a significant
  part of government value added and hence of GDP

4
Valuation

• In most countries, governments record CFC or
  depreciation at historic values. (Historic
  values are also called acquisition values)
• Depreciation at historic values is usually the
  cost paid at the time of construction or
  acquisition divided by the number of years the
  asset was expected to live.
• CFC calculated at historic values is much lower
  than CFC calculated at current market values.
• GDP is undervalued.

5
Perpetual inventory method

• Standard method for calculating the capital stock
  and CFC
• Requires
• long time series of gross fixed capital formation
• long time series of price statistics
• assumptions about service lives, mortality
  functions, and depreciation patterns

6
Other possibilities?

• Balance of fixed assets?
• Expert revaluation?
• PIM extrapolation of a recent benchmark?
• Using prices of new assets?
• Any other ideas?

7
EU Candidate countries

• Continuation of the balance of fixed assets
• Estonia Lithuania Latvia Poland.
• Benchmark estimates extrapolated using PIM
• Czech Republic Hungary Slovak Republic
  Slovenia.
• PIM
• Cyprus.