NETTING OUT INCOME TAXES FOR DIFFERENT TYPES OF INCOME OF HOUSEHOLDS

Abstract

Income is not a well-defined term either in economic statistics or in economic theory. In the national accounts certain definitions of income have been convened and internationally standardised, but the ongoing debate about the coming revision of the United Nations' SNA has shown that different views continue to exist as regarding the conceptual background and the systemic embedding of those definitions. One issue in this context is the distinction between income paid and income received within a pair of economic transactors. Income is a classical area of government interference in the circuit of economic flows for the purpose of partly correcting the original income distribution, partly of financing its own spending. A view of national accounts shows the difficulties that occur based on the fact that the simple theoretic equality of income paid and income received is not valid in many economic fields. The most conspicuous case is that of indirect taxes, which form part of value added, i.e. income originated in production, but not assigned to either of the production factors. Although this is an old and well-known case and its implications have been accepted in national accounting, they have hardly been reflected in economic theory or political practice. Even less attention has been devoted to the case of direct taxes although in quantitative terms it is equally relevant. The question is simple. A gap between income paid and income received is generated by direct taxes as well as by indirect taxes so that one would like to know the true result. What amount remains with the households of each type of income after the government has interfered? For economic analysis the opposition of income from labour and income from capital, each being netted from its direct tax component may be of interest. The income politics of trade unions and of employers can hardly result in decent compromises if the different view points from which income paid and income received must be studied are not taken into account. In the Federal Republic of Germany a concept of net compensation of employees was developed in connection with the early national accounts, although neither of the relevant international systems recommend it. It was later complemented by the concept of net entrepreneurial and property income. Also transfer incomes were balanced against their share of income tax (Hamer, 1964). It seems that similar ideas are being pursued in the United Kingdom (Central Statistical Office, 1988). The fact that such compilations have not become