Double Counting of Investment

Author:

Barro Robert J1

Affiliation:

1. Harvard University, USA

Abstract

Abstract The national-income accounts double-count investment, which enters once when it occurs and again in present value as rental income on added capital. The double counting implies that GDP and national income overstate sustainable consumption. An alternative measure, ‘permanent income’, equals consumption in the steady state but deviates from consumption outside of the steady state because expensing of gross investment applies to the long-run flow, not the current value. The permanent-income perspective substantially affects measured factor-income shares. When computed in relation to permanent income, the US labour-income share has been reasonably stable, in contrast to the declining share based on GDP.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics

Reference38 articles.

1. ‘Rare disasters, asset prices, and welfare costs’;Barro;American Economic Review,2009

2. ‘Macroeconomic effects of the 2017 tax reform’;Barro;Brookings Papers on Economic Activity,2018

3. ‘Macroeconomic crises since 1870’;Barro;Brookings Papers on Economic Activity,2008

4. ‘Sweat equity in U.S. private business’;Bhandari;Quarterly Journal of Economics,2021

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