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18. Output of central banks: taxes and subsidies on interest rates applied by central banks

 The issue

In the Frankfurt meeting the AEG decided on the estimation and allocation of central banks’ output. The national accounts should distinguish between market and non-market output of central banks. The non-market services of central banks should be treated as acquisition of collective services by general government with a matching transfer from the Central Bank to the Government. Market output is provided on an individual basis to all sectors of the economy against payment for the services.  

However, the group noted that the financial intermediation of central banks may include policy measures e.g. the interest rates could be set higher or lower than market interest rates. The usage of off-market interest rates by central banks may cause distortions in measuring output and value added. The solution is to separate the policy measure from the market service and to use market interest rates as the prices for the service.

 Reasons for inclusion in the Research Agenda

Although the AEG agreed in principle with the market/non-market split of the output of central banks, it was recognized that it could be difficult, if not impossible for countries, to implement this proposal in practice. Countries were allowed some flexibility in applying the distinction.  
Further, the AEG reviewed two options to treat the off-market interest rates applied by central banks: to record them as current transfers or as taxes/subsidies on production. On balance the group supported the second option i.e. deviations from market rates should be classified as taxes and subsidies. These should be identified explicitly when they are significant. However, due to the uncertainty surrounding the details, the AEG considered it useful to review these issues further and put them on the long-term research agenda.

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