Gross domestic product (GDP) is equal to the sum of the gross value added of all the institutional units resident in a territory engaged in production (that is, gross value added at basic prices) plus any taxes, minus any subsidies, on products not included in the value of their outputs. GDP is also equal to the sum of final expenditures minus expenditures on imports by institutional units resident in a territory. The “natural” valuation of the production measure of GDP is basic prices, while the “natural’ valuation of the expenditure measure of GDP is market prices. In the SNA it is the production measure that is adjusted (by adding taxes less subsidies on products) to achieve consistency. Implicit in this is the idea that taxes less subsidies on products are a form of income and not just a form of redistribution of income.
If it were decided to value GDP at basic prices then the sequence of accounts would need to be modified, and there are various possibilities as to how this might be done. This might lead to showing the two primary functions of government, production of non-market services and redistribution of national income, separately. |
