Durable Goods

Durable Goods - Defining

Durable Goods or Durable Products or Hard Goods are products which are either consumed and used or disposed and destroyed after serving usefulness for a long period of time in future.Durables consumption change according to the market.

Sunday, 6 February 2011

Saving Ratio For Capitalised Consumer Durable

In the case of goods, the SNA distinguishes between durable and non-durable. This distinction is not based on physical durability as such, but rather on whether the goods are used once only, or whether they are used repeatedly or continuously. A consumer durable good is thus defined as one, which may be used repeatedly or continuously over a period of more than a year, assuming a normal or average rate of physical usage.

In practice, the SNA93 measures household consumption only by expenditure and acquisitions. Household consumption of durables is treated as “other household consumption”. Thus it is “commonly” assumed that the consumption of durables does not increase households’ consumption possibilities in the future.This means that durable goods are already consumed in the “use of disposable income account” and therefore diminish saving. They are definitely not considered as an investment in the “capital account” (where they would not diminish saving). Additionally, if they were classified as an investment, they would provide a service or an income flow to the household.

To recognise households’ repeated use of durables, this article extends the production boundary by postulating that these durables are gradually used up in hypothetical production processes whose outputs consist of services. These services are then recorded as being acquired by households over a succession of time periods.

As already mentioned in the introduction, there are various ways and statistics to measure household saving.

Here we base our analysis on the institutional sector accounts, and thus the saving ratio is defined as the ratio between the following economic transactions:
  • Net household saving (B8) / [Net household disposable income (B6) + Adjustment for the change in equity of household pensions funds (D8)]
  • Net household saving (B8) / [Net household saving (B8) + Household final consumption (P3)]

To estimate a household saving ratio for the EA countries adjusted for capitalised consumer durables and based on sector accounts, the following steps must be taken:
  •  Expenditure on the purchase and maintenance of consumer durables must be deducted from household final consumption expenditure.
  •  The imputed rental value for consumer durables must be added to household final consumption expenditure.
  •  The imputed rental value for consumer durables less maintenance costs and taxes on production and imports (which include vehicle registration charges) must be added to the gross operating surplus of households.
  •  Households must deduct motor vehicle registration charges from other direct taxes payable.
  •  Expenditure on the purchase of consumer durables must be added to gross fixed capital formation.
  • Consumption of fixed capital for consumer durables must be included in the consumption of fixed capital for households.

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