[OPE] Estimating profit rate attractors

Paul C.,

Identifying the statistical concept of operating surplus with gross profit is problematic, for several reasons, such as:

1) It refers only to that portion of profit income thought to be directly arising out of the production of new output and which is part of the official new value added; this becomes problematic especially in the case of financial institutions (interest) and housing (imputed rent), but has more general effects on the grossing and netting of the aggregate.
2) It does not include output inventory (Marxists such as Andrew Kliman do not distinguish appropriately between input inventory and output inventory, and debate whether the inventory change should be included or excluded in net output)
3) It is in principle the residual item in the product account (net output minus compensation of employees, indirect tax less subsidies, and consumption of fixed capital) and therefore, its magnitude can be influenced by the estimation of the other components of Gross Output.
4) The magnitude of GDP, and consequently of the residual item, can affected by how the boundary with intermediate consumption is actually drawn. In particular, the concept of value added means that various kinds of rents paid out of revenue are excluded from consideration although these rents represent a profit income.
5) It includes both corporate profits, profits of unincorporated business and profits of self-employed operators.
6) GDP does not include foreign profit income received by resident enterprises (the net inflow of factor income is included in GNP, this is mainly profit from investments in production overseas). In the case of the UK, foreign profit receipts are very large (of course they are in reality larger than the factor income actually shown in the account).

I provided a brief overview of the concept and some measurement issues here:
http://en.wikipedia.org/wiki/Operating_surplus

It is always a good idea to compare the measures drawn from SNA gross product data to alternative profit measures, such as provided in tax data, flow-of-funds, business data etc.

Jurriaan

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Received on Sun May 3 16:11:39 2009