VIII. THE SECONDARY DISTRIBUTION OF INCOME ACCOUNT
A. Introduction
| 8.1. | The secondary distribution of income account (see table 8.1), shows how the balance of primary incomes of an institutional unit or sector is transformed into its disposable income by the receipt and payment of current transfers excluding social transfers in kind. This redistribution represents the second stage in the process of income distribution as shown in the accounts of the System. | | | Text refers to: table 8.1.  |
| 8.2. | The redistribution of income in kind account (see table 8.2), takes the process of income redistribution one stage further. It shows how the disposable income of households, non-profit institutions serving households (NPISHs) and government units are transformed into their adjusted disposable income by the receipt and payment of social transfers in kind. Non-financial and financial corporations are not involved in this process. | | | Text refers to: table 8.2. |
1. The secondary distribution of income account
| 8.3. | Apart from disposable income and balance of primary incomes, the balancing item carried forward from the primary distribution of income accounts, all the entries in the secondary distribution of income account consist of current transfers. A transfer is a transaction in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset in return as counterpart. A capital transfer is one in which the ownership of an asset is transferred or which obliges one or both parties to acquire, or dispose of an asset. Other transfers are described as current. The concept of a transfer is explained in more detail in section B below. Three main kinds of current transfers are distinguished in the account:
Current taxes on income, wealth, etc.
Social contributions and benefits
Other current transfers. |
| 8.4. | The transfers payable by an institutional unit or sector are recorded on the left-hand side of the account under uses. For example, in table 8.1, taxes on income payable by the household sector are recorded at the intersection of the row for this item and the uses column for the household sector. The transfers receivable by an institutional unit or sector are recorded on the right-hand side of the account under resources. For example, the social security benefits in cash receivable by the household sector are recorded at the intersection of the row for this item and the resources column for the household sector. In accordance with the general accounting rules of the System, the entries in the account, apart from the balancing items, refer to amounts payable and receivable. These may not necessarily coincide with the amounts actually paid or received in the same accounting period. Current transfers may take place between resident and non-resident units as well as between resident institutional units. | | | Text refers to: table 8.1. |
| 8.5. | Much of this chapter is concerned with the detailed definition, description and classification of the various types of current transfers recorded in the secondary distribution of income and redistribution of income in kind accounts. Their general nature and the purposes they serve are summarized in the following paragraphs. |
Current taxes on income, wealth, etc. (D.5)
| 8.6. | Most of these taxes consist of taxes on the incomes of households or profits of corporations and of taxes on wealth that are payable regularly every tax period (as distinct from capital taxes levied infrequently). In table 8.1, current taxes receivable appear under resources for the general government sector while taxes payable appear under uses for the household and non-financial and financial corporation sectors, and possibly for the non-profit instituions serving households (NPISHs) sector. | | | Text refers to: table 8.1. |
Social contributions and benefits (D.6)
| 8.7. | Social benefits are current transfers received by households intended to provide for the needs that arise from certain events or circumstances, for example, sickness, unemployment, retirement, housing, education or family circumstances. There are two kinds of social benefits: social insurance benefits and social assistance benefits. To qualify as social insurance benefits the transfers must be provided under organized social insurance schemes. Social insurance benefits may be provided under general social security schemes, under private funded social insurance schemes or by unfunded schemes managed by employers for the benefit of their existing or former employees without involving third parties in the form of insurance enterprises or pension funds. Payments by insurance enterprises under policies arranged individually and on the individual's own initiative and not under an organized social insurance scheme are excluded even when the same risks and conditions are concerned. Social assistance benefits are intended to meet the same kinds of needs as social insurance benefits but are provided outside of an organized social insurance scheme and are not conditional on previous payments of contributions. Social insurance benefits in kind provided under private funded social insurance schemes or unfunded schemes are treated as if they were paid in cash and included in the secondary distribution of income account. However, social insurance benefits in kind provided under general social security schemes and all social assistance benefits in kind constitute social transfers in kind and are therefore included in the redistribution of income in kind account. Thus, in table 8.1 social benefits, except social transfers in kind, are recorded under resources for the household sector and may, in principle, be recorded under uses for any sector as any institutional unit in its capacity as an employer may operate an unfunded scheme in which it receives imputed contributions and pays benefits. | | | Text refers to: table 8.1. |
| 8.8. | Social contributions are actual or imputed payments to social insurance schemes to make provision for social insurance benefits to be paid. They may be made by employers on behalf of their employees or by employees, self-employed or non-employed persons on their own behalf. Social contributions may, in principle, be recorded under resources for any sector. Most contributions, however, are likely to be recorded under resources for the general government sector, including social security funds, and for insurance corporations and pension funds in the financial corporate sector. Social contributions are recorded under uses only for households, either resident or non-resident. |
Other current transfers (D.7)
| 8.9. | Several kinds of transfers serving quite different purposes are included under this heading. For example, one important group consists of net premiums and claims for non-life insurance. The net non-life insurance premiums receivable by insurance corporations (the actual premiums plus premium supplements reduced by the associated service charges) are recorded under resources for the insurance corporations sub-sector, while the net premiums payable may be recorded under uses for any sector. Conversely, the claims payable by insurance corporations are recorded as uses for the financial corporate sector, while the claims receivable may be recorded under resources for any sector. |
| 8.10. | Another group consists of current transfers between different kinds of government units, usually at different levels of government, and also between general government and foreign governments. This heading also includes other current transfers such as between different households. |
2. Disposable income (B.6)
| 8.11. | Disposable income is the balancing item in the secondary distribution of income account. It is derived from the balance of primary incomes of an institutional unit or sector by:
(a) Adding all current transfers, except social transfers in kind, receivable by that unit or sector; and
(b) Subtracting all current transfers, except social transfers in kind, payable by that unit or sector. | | | Text refers to: table 8.1. |
| 8.12. | Disposable income, like the balance of primary incomes, may be recorded gross or net of consumption of fixed capital. It may be necessary to record it gross because of the difficulty of measuring consumption of fixed capital even though consumption of fixed capital is a cost of production and not a component of income. The following discussion refers to the net concept of disposable income. |
| 8.13. | Disposable income is not all available in cash. The inclusion in the accounts of non-monetary transactions associated with production for own consumption or barter, or with remuneration in kind, means that households have no choice but to consume certain kinds of goods and services for which the values of the corresponding expenditures out of disposable income are imputed. Although social transfers in kind from government units or NPIs to households are recorded separately in the redistribution of income in kind account, other transfers in kind are recorded in the secondary distribution of income account together with transfers in cash. They may include international transfers of food, clothing, medicines, etc., to relieve the effects of famine or other hardships caused by natural disasters or wars. The recipients of transfers in kind, other than social transfers in kind, are, by convention, recorded as making imputed consumption expenditures on the goods of services in question as if the transfers were received in cash. |
| 8.14. | Households also receive several kinds of property income that is not made available in cash. These include the income accruing from the investment of insurance and pension reserves that is attributed to the households that have taken out insurance policies or have pension entitlements. This income is recorded as being received by the appropriate households in the allocation of primary income account but is automatically repayable as premium supplements to the insurance enterprises or pension funds and cannot be used for purposes of consumption expenditures. Another example is provided by the interest accruing on a zero-coupon bond which is automatically reinvested in the bond. |
Links with economic theoretic concepts of income
| 8.15. | Disposable income as measured in the System can be compared with the concept of income as it is generally understood in economics. From a theoretical point of view, income is often defined as the maximum amount that a household, or other unit, can consume without reducing its real net worth. However, the real net worth of a unit may be changed as a result of the receipt or payment of capital transfers and as a result of real holding gains or losses that accrue on its assets or liabilities. It may also be changed by events such as natural disasters that change the volume of assets. Capital transfers, real holding gains or losses and other changes in the volume of assets due to the effect of events such as natural disasters are specifically excluded from disposable income as measured here. Capital transfers are recorded in the capital account of the System, while other changes in the volume of assets and real holding gains or losses are recorded in the other changes in assets account. According to the concept of disposable income used in the System, the net worth that needs to be maintained intact is that at the beginning of the accounting period adjusted for the value of any capital transfers received or paid, for other changes in the volume of assets and for any real holding gains or losses accruing during the accounting period. Disposable income is better interpreted in a narrower sense as 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 expenditures by reducing its cash, by disposing of other financial or non-financial assets or by increasing its liabilities. This concept is equivalent to the economic theoretic concept only when the net worth at the beginning of the period is not changed by capital transfers, other changes in the volume of assets or real holding gains or losses. |
National disposable income
| 8.16. | Most current transfers, whether in cash or in kind, can take place between resident and non-resident institutional units as well as between resident units. However, it should be noted that all social transfers made to or received from non-residents are treated as if they were in cash. It follows that gross or net national disposable income may be derived from gross or net national income by:
(a) Adding all current transfers in cash or in kind receivable by resident institutional units from non-resident units; and
(b) Subtracting all current transfers in cash or in kind payable by resident institutional units to non-resident units. |
| 8.17. | Among the more important current transfers taking place between residents and non-residents are the following:
Current international cooperation: i.e., current transfers between different governments, such as transfers under aid programmes intended to sustain the consumption levels of populations affected by war or natural disasters such as droughts, floods or earthquakes
Social contributions and/or benefits
Insurance premiums and claims
Payments of current taxes on income or wealth
Remittances between resident and non-resident households. |
| 8.18. | The net disposable income of a country is a better measure than its net national income (NNI) for purposes of analysing its consumption possibilities. |
3. The redistribution of income in kind account
| 8.19. | Apart from the balancing items, disposable income and adjusted disposable income, all the entries in the redistribution of income in kind account consist of social transfers in kind. Social transfers in kind consist only of social benefits in kind and transfers of individual non-market goods and services provided to resident households by government units, including social security funds, and NPISHs. | | | Text refers to: table 8.2. |
| 8.20. | The most common types of individual non-market goods and services are education and health services provided free, or at prices that are not economically significant, to individual households by non-market producers owned by government units or NPISHs. They are described in chapter IX. As social transfers in kind only take place between government units, NPISHs and households, the redistribution of income in kind account is not needed for the non-financial and financial corporate sectors. |
| 8.21. | The social transfers in kind payable by government units or NPISHs are recorded on the left-hand side of their redistribution of income in kind accounts under uses. For example, in table 8.2, the value of individual non-market goods or services provided free, or at prices that are not economically significant, by government units, is recorded at the intersection of the row for this item and the uses column for the general government sector. (These goods and services are valued by their costs of production.) The social transfers receivable by the household sector are recorded on the right-hand side of their account under resources. For example, the value of social security benefits in kind receivable by the household sector is recorded at the intersection of the row for this item and the resources column for the household sector. As only the household sector receives social transfers in kind, the resources columns for the other four sectors are empty. | | | Text refers to: table 8.2. |
| 8.22. | There are only four main categories of social transfers in kind, i.e., social benefits in kind, divided into:
Social security benefits, reimbursements
Other social security benefits in kind
Social assistance benefits in kind
ransfers of individual non-market goods and services.
Each of these categories is described in more detail below. |
| 8.23. | Most of the non-market services produced by NPISHs are individual in nature, although some have some of the characteristics of collective services. For simplicity, all the non-market services of NPISHs are treated as individual and are, therefore, recorded under social transfers in kind. |
4. Adjusted disposable income (B.7)
| 8.24. | Adjusted disposable income is the balancing item in the redistribution of income in kind account. It is derived from the disposable income of an institutional unit or sector by:
(a) Adding the value of the social transfers in kind receivable by that unit or sector; and
(b) Subtracting the value of the social transfers in kind payable by that unit or sector. | | | Text refers to: table 8.2. |
| 8.25. | Adjusted disposable income, like disposable income, may be recorded gross or net of consumption of fixed capital. Because social transfers in kind are payable only by government units and NPISHs to households, it follows that the adjusted disposable incomes of the general government and NPISHs sectors are lower than their disposable incomes, while the adjusted disposable income of the household sector exceeds its disposable income by the total value of social transfers in kind. The adjusted disposable income for the total economy is the same as its disposable income. In practice, the concept of adjusted disposable income is mainly relevant to government units and households, the distinction between adjusted disposable income and disposable income being irrelevant at the level of the economy as whole. |
| 8.26. | The adjusted disposable income of a household can be interpreted as measuring the maximum value of the final consumption goods or services that it can afford to consume - the use for the satisfaction of the needs or wants of its members - in the current period without having to reduce its cash, dispose of other assets or increase its liabilities for the purpose. Its consumption possibilities are determined not only by the maximum amount it can afford to spend on consumption goods and services (its disposable income), but also by the value of the consumption goods and services it receives from government units or NPISHs as social transfers in kind. Conversely, the adjusted disposable income of general government can be interpreted as measuring the maximum value of the collective services that it can afford to provide to the community without having to reduce its cash, dispose of other assets or increase its liabilities for the purpose. |
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