RDP 2006-07: Household Saving and Asset Valuations in Selected Industrialised Countries Appendix B: Measurement Issues Related to the National Accounts Measure of Saving

Household saving as defined in the national accounts is a residual concept, and can be defined as follows:[24]

personal income – personal taxes – personal outlays


  • personal income is the sum of compensation of employees, supplements to wages and salaries, proprietors' income with inventory valuation adjustment and capital consumption adjustment, rental income of persons with capital consumption adjustment, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance;
  • personal taxes include taxes paid by persons on income, including realised net capital gains, and on personal property; and
  • personal outlays are the sum of personal consumption expenditures, personal interest payments, and personal current transfer payments.

Because household saving as measured in the national accounts is a residual item, its computation is in effect a compounding of any measurement errors in aggregates such as consumption, income and taxes. As discussed in this paper, household saving as measured in the national accounts is clearly an imperfect measure of life-cycle saving and the flows into the stock of household wealth.[25] Moreover, when moving into cross-country comparisons, several basic comparability issues arise:

  1. coverage of the saving rate measure, that is, whether it includes purely households or a broader definition of personal saving rates which also includes non-profit institutions serving households plus unincorporated enterprises. Most countries report the personal saving rate, which may mask different marginal propensities to consume across sectors, including effects on saving arising from changing trends in incorporation;[26]
  2. pension scheme design, with an important difference between defined benefit and defined contribution schemes. Though the former are treated as if their assets were directly owned by the employee beneficiaries, households generally retain stronger ownership of the latter given that they actively manage these (see Reinsdorf 2004 for such an argument for the US 401(k) savings of households);
  3. taxation issues may influence household saving ratios. For example, while unrealised capital gains are not included in personal income as measured in the national accounts, taxes paid on them are recorded.[27] Relevant capital gains could include, for instance, realised and unrealised capital gains on housing, financial assets, owned businesses, and other components of wealth. See point 5 below for another taxation issue;
  4. the distinction between current and capital outlays in the national accounts is subject to debate. Though consumer durable goods are normally considered as consumption, they could alternatively be considered as investment, which would raise gross savings; net savings would be offset by depreciation of fixed capital. The same argument could also apply when examining outlays toward human capital, such as those on education, which are treated as consumption (de Mello et al 2004);
  5. the extent to which household consumption of public services is financed by collective taxation may exert an influence on disposable income, thereby affecting the saving ratio (see Harvey 2004);
  6. another taxation issue which may influence household saving ratios is the split of taxes between income taxes and taxes on production;
  7. the design of defined benefit pension plans across countries may influence private saving. As noted in Harvey (2004), the most recent version of the System of National Accounts (SNA 93) introduced a special treatment of contributions to, and benefits from, funded pension schemes. Contributions to private pension or life insurance schemes and the income earned by these schemes are both included in household saving, whereas any excess of private contributions to public social security schemes over the benefits received for them is not regarded as household saving. As indicated in Cotis, Coppel and de Mello (2004), transactions between households and government social security systems are considered as current, while those with private schemes are treated as capital transactions; and
  8. inflation affects saving through the adjustment of nominal debt service payments, whereby higher inflation raises nominal interest payments and receipts while eroding the real value of debt and transferring wealth from creditors to debtors (de Mello et al 2004 and Edey and Gower 2000).

It is beyond the scope of this paper to provide detailed estimates of the size of these estimates for the four countries of interest, and this is left for future research. The interested reader is referred to Reinsdorf (2004), who adjusts the US saving ratio for factors (1) through (4) above, and Harvey (2004), who makes adjustments only for (5) through (7), also for the US. Also Catte and Boissinot (forthcoming) examine the comparability of savings rates across OECD countries and make some efforts to construct a harmonised definition of savings across countries.


This definition is from the Bureau of Economic Analysis in the US; see <http://www.bea.gov/bea/glossary/glossary_p.htm>. [24]

For an overview of some conceptual differences between household saving as measured in the national accounts and economic concepts of saving, see Gale and Sabelhaus (1999). [25]

Indeed, such trend changes in incorporation may have been evident in the last decades in industrialised countries given factors such as a shrinking agricultural sector, a rise in the number of self employed, and a trend for small businesses to become incorporated for tax reasons – see, for instance, Connolly and Kohler (2004). One prominent example is the incorporation of Goldman Sachs in the late 1990s, see Gale and Sabelhaus (1999). Taken in conjunction with a likely differing marginal propensity to consume out of notional profits and labour income, this could induce some movement in personal saving as measured in the national accounts. In particular, if small businesses' average propensity to save out of their retained profits is generally higher than households' average propensity to save out of their other income, this change is likely to have reduced the average saving rate out of total household income. [26]

This could imply a shift of income (and consequently saving) from the household to the public sector when substantial gains occur, such as in the 1990s, see de Serres and Pelgrin (2003). [27]