10.27
Value added, the balancing item in the production account, is the only
balancing item to form part of the integrated system of price and volume indices. The
very special characteristics of this item must, however, be emphasised, as must
the significance of its related volume and price indices.
Unlike the various flows of goods and services, value added does not represent
any single category of transactions. It cannot, therefore, be directly broken
down into a price component and a volume component.
10.28
Definition:
Value added at constant prices is defined as the difference between output at
constant prices and intermediate consumption at constant prices.
VA = ∑ P(0) Q(1) - ∑ p(0) q(1)
where P and Q are prices and quantities for output and p and q are prices and
quantities for intermediate consumption. The theoretically correct method to
calculate value added at constant prices is by double deflation, i.e. deflating
separately the two flows of the production account (output and intermediate
consumption) and calculating the balance of these two revalued flows.
10.29
In some cases, where the statistical data remain incomplete or not
sufficiently reliable, it may be necessary to use a single indicator. If there are good
data on value added at current prices, one alternative to double deflation is to
deflate current value added directly by a price index for output. This implies
the assumption that prices for intermediate consumption change at the same rate
as for output. Another possible procedure is to extrapolate value added in the
base year by a volume index for output. This volume index can be calculated
either directly from quantity data or by deflating the current value of output by
an appropriate price index. This method in fact assumes that the volume
changes are the same for outputs and for intermediate consumption.
For certain market and non-market service industries, such as finance,
business services, education or defence, it may not be possible to obtain satisfactory
estimates of price or volume changes for output. In these cases the movements
of value added at constant prices can be estimated by means of changes in
compensation of employees at constant wage rates and consumption of fixed capital at
constant prices. Compilers of data may be forced to adopt such expedients,
even when there is no good reason to assume that labour productivity remains
unchanged in the short or long term.
10.30
By their very nature, therefore, the indices of volume and price for value
added are different from the corresponding indices for the flows of goods and
services.
The same applies to price and volume indices of aggregate balancing items such
as gross domestic product. The latter is equivalent to the sum of all the
values added minus FISIM, i.e. to an addition of balancing items, plus taxes less
subsidies on products and from another point of view can be seen to represent
the balancing item between total final uses and imports.