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in fixed assets. Their consumption and saving activities are summarised by what is called the “household saving ratio”. It is derived as household saving divided by household disposable income (see box “The definition of the household saving ratio” for a more precise definition). Household disposable income comprises the current income of the households sector from production plus property and transfer receipts (such as interest, dividends and social benefits) minus payments (such as interest payments and income tax). Household disposable income may be either used for final consumption or saved. Movements in the household saving ratio over time are also used to explain and forecast the consumption behaviour of households. Analysts are also interested in the reasons for differences in movements in, and levels of, the household saving ratio between various countries.

Published and standardised household saving ratios

Chart 1 shows the annual household saving ratios as published by the ECB and the national statistical agencies in the United States and Japan. A straight comparison of the ratios shown in Chart 1 is misleading because there are differences in how the ratios are defined and compiled in practice. The differences principally relate to whether the saving ratios are gross or net of depreciation (referred to as “consumption of fixed capital” in the SNA 93) and whether non-profit institutions serving households (NPISH) are included or not. For any given country, the gross household saving ratio is always higher than the net household saving ratio. This is because the numerator (saving) is always much less than the denominator (disposable income), so that the resulting ratio is lower as depreciation is deducted from both of them.

It is conceptually preferable to use net household saving ratios because the cost of using up capital assets in the process of production should be deducted from both income and saving. Nevertheless, in the context of international comparisons it may be preferable to use gross household saving ratios for all countries if estimates for depreciation2 are deficient or non-existent for some countries. As not all countries in the euro area currently distinguish NPISH as a separate institutional sector, it is necessary to combine NPISH with the household sector

2. Estimates of depreciation in Japan’s institutional sector accounts are on a book value basis but the adjustments to a replacement cost basis are shown in the reconciliation accounts. Since replacement cost is the preferred conceptual basis for depreciation, estimates of net saving and net household disposable income for Japan have been recalculated on this basis.

2

The definition of the household saving ratio

The household saving ratio has traditionally been defined as household saving divided by household disposable income. However, the SNA 93 introduced a special treatment of contributions to, and benefits from, funded pension schemes. Previously these flows were treated as financing transactions and included only in the financial accounts. In the SNA 93, partly in order to achieve greater correspondence with household income measures derived from household surveys, they were also included in the secondary distribution of income account, where the balancing item is disposable income. As this would have resulted in saving via pension funds being excluded from the measure for household saving, a special adjustment item was introduced in a new account entitled “Use of disposable income account” in order to derive household saving. The household saving ratio must therefore be calculated as the ratio of household saving (B.8 - SNA 93 code) divided by household disposable income (B.6) plus the adjustment for the change in net equity of households in pension funds (D.8). The United States has chosen not to follow the SNA 93 treatment regarding the inclusion of contributions and benefits relating to funded pension schemes in the household income accounts. Consequently, the adjustment item is not required and the traditional definition of the household saving ratio still applies.

for all countries included in this comparative study. Using the available data for most euro area countries, Chart 2 shows an experimental saving ratio for the euro area as a whole. Moreover, the ratios in Chart 2 have been adjusted so that they are on a net basis, to conform to the SNA 93 definitions, and include NPISH. Putting the ratios on this uniform basis reduces the differences in levels shown in Chart 1, although the gap between the ratios for the euro area and the United States3 remains significant. Three

3. Small adjustments were required for the United States because of definitional differences in the National Income and Product Accounts relating to “disposable personal income” and in order to include an accrual adjustment to compensation of employees. The estimates for the household saving ratio for the euro area relate to the euro area excluding Ireland and Luxembourg.

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