Public Transfers

The NT Accounts include a full accounting of the general government budget (comprising federal, state, and local levels). The public sector transactions for households in the NT accounts are meant to mirror those of the government sector. That is, inflows into the household sector from the government are outflows from the government to the households sector. Therefore, the aggregate public sector flows observed in NT accounts should equal the total general government budget (assuming all government benefits, revenue and debt are held domestically). Indeed, we use the official statistics on the general government budget as control totals to insure this equality holds. Therefore, we can fully reconstruct government budgets using NT accounts.

Public Transfers may be a misleading title, since it is sometimes used to refer only to programs such as public education, public health, and income transfers such as Social Security. Here, we refer to all transactions with the government. So perhaps Government Transactions is a better description. In contrast to Generational Accounting, we are attempting to measure the full net benefit or net burden of government policies for each generation and not of a more narrow set of transfer programs.

Public Transfer Inflows (Benefits Received from the Government)

At a minimum, we would like to divide government expenditures into 3 broad categories:

• 1. repayment of debt and interest [TGM];
• 2. age-related transfers (the three main ones being: public education [TGE], health care [TGH], and pensions [TGSOA]);
• 3. non-age-related spending [TGC].

Where feasible, we would like further details on other age-related transfers for Social Protection:

• Sickness and disability (TGSD)
• Survivors (TGSS)
• Family and children (TGSF)
• Unemployment (TGSU)
• Housing (TGSH)
• Other social protection (TGSX)

Where feasible, we would like to break out non-age related spending (Collective Goods and Service - TGC) into two categories:

• Collective, Non-congestible Public Goods and Services(TGCN)
• Collective, Congestible (TGCC)

Age incidence of government benefits

Benefits should be assigned to the individual for whom the government intends to provide the benefits. For example, an educational voucher might be provided by the government to the parents of school-age children. In this case, the benefits should be assigned to the children who are receiving the education, not to the parents who received the voucher. In some cases the government may provide a single cash payment to an adult in the household on behalf of all members of the household. In this case, each household member should be assigned their share of this benefit. In the US, examples would be welfare cash benefits like TANF but also non-cash programs like food stamps and public housing.

The value of collective goods and services (both public goods and congestible goods) are assigned on a per-capita basis.

Is this approach consistent with our treatment of the household in other contexts? Transfers given by the government are assigned to individual household members based on the intent of the giver (in this case, the government). But transfers given by individuals (family transfers) are always assigned to the household head without regard to the intent of the giver. That is, NT accounts treat the household head as a gate-keeper for family transfers but not for public transfers. What is the theoretical reasoning for this differential treatment of transfers?

Public Transfer Outflows (Taxes, Mandatory Contributions, Fees, and Bond Purchases Paid to the Government)

Where feasible, we would like to break out government revenue according to source:

• Personal Income Taxes
• Mandatory Contributions for Social Insurance
• Property Tax
• Business and Corporate Taxes
• Sales (Consumption) Tax
• Value-added Tax
• Fees for services and goods
• Sale of bonds

Age incidence of government taxes, contributions, fees, and bonds

In general, we assume that the person who pays the tax also bears the tax. Personal income taxes and contributions for social insurance are easily assigned to individuals. We assume that household heads own all property. Therefore, in principle, property taxes, business and corporate taxes, and new bond sales from the government should all be assigned to household heads.

There are some exceptions to consider. In the case of property tax levied on landlords, some portion of this tax is likely passed on to renters.

In addition, for states within a federal system and for small countries, we need to consider how to treat taxes paid by business and corporations (business and corporate tax as well as property taxes, fees, sales tax, and other taxes). There are two options. One is to assume that business in these settings must be receiving an equivalent value in services from the government. Otherwise, they would simply move to another state in the federal system or to another country (in the case of a small country). This was our assumption in an earlier analysis of fiscal impacts of immigration. The second option is to assume that these taxes are borne by labor (rather than capital). This second option is adopted by Generational Accounting in their treatment of marginal corporate income taxes in a small, open economy.

Sales taxes are assigned to individuals based on their consumption expenditures. This is one of the few taxes that will be paid by children.

Fees for services and goods are assigned to individuals on a per-capita basis. Note that the benefits received by individuals from these purchases (classified as congestible, collective services provided by the government= TGC) are also assigned on a per-capita basis to individuals. In this way, fees for goods and services (and the operation of public enterprises to the extent that they receive no subsidies) do not generate any age transfers in NT Accounts.

Ignoring international transactions

Our NTA methodology ignores international transactions. The government sector is assumed to operate only within the national economy. NT accounts assume all government spending is directed toward the domestic economy. For example, foreign-aid is considered to be a public good -- the benefit of which is received by domestic individuals. Perhaps it would be more natural to consider this as an international transfer from the domestic taxpayers to the international recipients of the aid.

Similarly, we assume that public debt is financed domestically. So, the payment of interest on privately-held government bonds is considered to be payment to residents. And, the sale of bonds is considered to reflect purchases by residents.

We also assume that the household sector only holds national assets (national corporate stock and national bonds).

Queries

1. What if a government simply prints money rather than issuing new bonds?
   • This would be treated as an inflationary tax whose incidence depends on the extent of inflation-indexing in the economy.
2. What about government investment in capital?
   • To keep things simple, we assume that all government spending is for current consumption, none for investment. In the future, we will track government investment and assets.
3. What about the value of government assets?
4. Are bonds held by the government (for example the Social Security Trust Funds ) considered to be assets? How is their sale or purchase by the Trust Funds reflected in NT Accounts?
5. What about revenue from sale of government assets? If purchased abroad?
6. What about debt held by foreigners?
7. What about import/export taxation?
8. How to deal with the fact that taxes on capital can be capitalized into the value of existing assets?
   • Tax rates on older assets might be higher than newer assets (due to new investment incentives). But do we need to worry about this?
9. What is the age incidence of a value-added tax?

IMF?

IMF has begun a task force devoted to harmonization of public sector accounting. We might want to contact them at some point. http://www.imf.org/external/np/sta/tfhpsa/2004/092404.pdf