Regional Seminar on Developing a Program for the Implementation of the 2008 SNA and Supporting Statistics Leyla BAYRAK NEVES DE ALMEIDA 11-13 September

Regional Seminar on Developing a Program for the Implementation of the 2008 SNA and

Supporting Statistics

Leyla BAYRAK NEVES DE ALMEIDA

11-13 September 2013 Ankara - Turkey

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National Seminar on Developing A Program for the Implementation of the

2008 SNA and Supporting Statistics in Turkey 10 September 2013 / Ankara - Turkey

CONSUMPTION OF FIXED CAPITAL

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The nature of capital and its contribution to production has long been a contentious issue for economists. According to SNA guideliness, there is a good measure of agreement on definitions of the stock of fixed capital assets and capital consumption in the context of the national accounts.




Definition:In SNA, consumption of fixed capital is defined in general terms as the decline of the current value of the stock of fixed assets owned and used by a producer, as a result of physical deterioration, normal obsolescence or accidental damage, during the course of the accounting period.

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Exclusions from the definition:

The value of fixed assets destroyed by acts of war or exceptional events such as major natural disasters which occur very infrequently. Such losses are recorded in the System in the account for “Other changes in the volume of assets”.

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ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL

• The gross consumption of fixed capital can be estimated either by surveys of enterprises or by the “perpetual inventory method” (PIM).

• Corporate accounting registers depreciation of fixed capital, but these records are not generally suitable for national accounts purposes and are not used for calculation of consumption of fixed capital.

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• In order to be consistent with other entries in the same production account, consumption of fixed capital should be measured at current replacement cost.

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• Estimates of consumption of fixed capital are obtained by the PIM method and PIM provides theoretically appropriate estimates for economic analysis.

• The basic requirements for the PIM are namely statistics on gross fixed capital formation, price indices for capital assets and information on average service lives for assets.

ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL



PERPETUAL INVENTORY METHOD - PIM

Definition:The Perpetual Inventory Method (PIM) generates an estimate of the capital stock by accumulating past purchases of assets over their estimated service lives. The standard procedure is to use the PIM to estimate the gross capital stock, apply to it depreciation factors to calculate consumption of fixed capital and obtain the net capital stock by subtracting accumulated capital consumption from the gross capital stock.

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Year aquisitions aquisitions GFCF Retirements (year end)

(year end)

total Asset A Asset B total Stock (year end)

Asset A Asset B Total Asset A Asset B

1 10 10 10 0 10 2 2 8

2 10 15 25 20 15 35 4 1,5 5,5 27,5

3 10 15 25 30 30 60 6 3 9 43,5

4 10 15 25 40 45 85 8 4,5 12,5 56

5 10 15 25 50 60 110 10 6 16 65

6 15 15 10 40 75 115 8 7,5 15,5 64,5

7 0 10 30 75 105 6 7,5 13,5 51

8 0 10 20 75 95 4 7,5 11,5 39,5

9 0 10 10 75 85 2 7,5 9,5 30

10 0 10 0 75 75 7,5 7,5 22,5

11 0 0 75 75 7,5 7,5 15

12 0 15 0 60 60 6 6 9

13 0 15 0 45 45 4,5 4,5 4,5

14 0 15 0 30 30 3 3 1,5

15 0 15 0 15 15 1,5 1,5

16 0 15 0 0 0



• Statistics on gross fixed capital formation

• Price indices for capital assets

• information on average service lives for assets.

REQUIREMENTS TO USE THE PIM



• Countries which have no information related to Capital´s Service Life, use OECD’s average service life of investment.

• Significant studies about the service life of assets in Turkey are not available, therefore OECD average service lives are use for this calculation.

• According to OECD recommendation, average service lives of construction, machinery and equipment investments, currently used for PIM estimates, are respectively 41 years and 31 years.



• Information on gross fixed capital formation in each year is required for calculations.

• Within the methodological revision the PIM was developed for estimates of the consumption of fixed capital covering the period since 1998. In order to apply the PIM, information on series of annual gross fixed capital formation in constant prices for machinery and equipment and for construction is required.

ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL IN TURKEY



• Data on fixed capital formation series, beginning from 1948 at 1998 (base year) constant prices are used to produce the estimation of consumption of fixed capital at constant prices.

• Estimates at current replacement cost are obtained by relating the constant price estimates. The price indices used for relating the constant price estimates are derived from investment at current and at 1998 constant prices.

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Estimates are derived using a delayed linear function. This survival function shows that the surviving assets are reduced by a constant amount each year.



Conclusion:Consumption of fixed capital has been estimated by TURKSTAT for the period starting in 1998, but data hasn’t been published due to the ongoing revision.



PLANNED STUDIES• GCFC estimation by sectors.

• If the PIM is used, sectors breakdown cannot be more detailed than statistics on gross fixed capital formation (GFCF). So GFCF estimation should be done by sectors.

• To be able to have more reliable estimation of Consumption of Fixed Capital, it is necessary to have a comprehensive and detailed information of the service lives of assets .



Thank you for your attention!

Documents

Regional Seminar on Developing a Program for the Implementation of the 2008 SNA and Supporting Statistics Leyla BAYRAK NEVES DE ALMEIDA 11-13 September