# Presentation: 731834

## Territorial Adjustments in Government Transactions

*BEA Government Statistics Users Conference, Sep. 14, 2006*

**Benyam Tsehaye**
*Economist, Federal Branch*

## Topics To Be Covered

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

## 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”

## 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

## Territorial Adjustments

- This presentation is primarily about transactions between the U.S. Government and the territories.
- Social insurance programs
- Federal grant programs

## 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

## 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**

## Definition of the United States

- Source data used may employ different definitions
- International Transaction Accounts (ITAs) and NIPAs.

## 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

## 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.

## 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

## 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

## Conceptual Problem

- Social Security paid $493.1 billion to beneficiaries in 2004 (source: Social Security Administration):
- 		U.S. territories, $5.2 billion
- 		Foreign, $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

## 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.

## 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.”

## 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

## 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

## Effect of Proposal 

## 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. 202-606-9791
- 			e-mail benyam.tsehaye@bea.gov