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Sources, definitions and bibliography

Inequality between households in the national accounts

Wider gaps in income than in consumption

Insee Première N°1265 - November 2009

Sources

The breakdown of the household account is based on 2003 national-accounts data and on five INSEE surveys on income and consumption: the 2004 statistics on income and living conditions (SILC), the 2003 Tax Income Survey, the 2006 Family Budget Survey, the 2002 Housing Survey, and the 2003 Health Survey. Sociodemographic data are drawn from the Labour Force Survey and the 2003 satellite account for housing.

Definitions

In national accounting, gross disposable income (referred to here as disposable income) includes income from economic activity (gross wages and salaries of households ; profits of self-employed business owners), property income excluding unrealized and realized capital gains (dividends, interests, and rents), transfers (notably insurance benefits net of premiums paid) and social benefits (retirement pensions, unemployment benefits, family allowances, basic income support, etc.). From those incomes, national accountants subtract taxes (mainly income tax, occupancy tax, and two levies on taxable income earmarked for social-insurance funds: the Contribution Sociale Généralisée [CSG] and the Contribution au Remboursement de la Dette Sociale [CRDS]) and social contributions.

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In the national accounts, all transfers between resident households are neutral and are therefore not measured. They include transfers in cash (child support, financial aid), and purchases and sales of goods. To break down the household account by category, we have had to introduce income flows designated as "private transfers", for they are not uniformly distributed among households. They consist solely of transfers in cash. Transfers in kind are excluded, as are estates and gifting.

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Household consumption expenditure comprises expenditures funded directly by households. It does not include the share of health, education, and housing expenditures paid by government. By contrast, it includes imputed rents. The reason is that the national accounts treat owner-occupier households as producers of a housing service provided to themselves. Their income and consumption are accordingly increased by imputed rents, which are defined as the rents that would be charged in the private rental sector for dwellings with similar characteristics.

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Some expenditures known as precommitted (or non-discretionary) are incurred under the terms of contracts that are hard to renegotiate in the short term. They include housing-related expenditures (real and imputed rents and other related expenses such as water, gas, and electricity), canteen expenses, telecommunication services, insurance (excluding life insurance) and financial services. Discretionary income is disposable income minus precommitted consumption expenditures.

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To compare living standards of households of different sizes and composition, statisticians use a measure of income adjusted by consumption unit (CU) with the aid of an equivalence scale. The scale sets the following weights: 1 CU for the first adult household member ; 0.5 CU for the other members aged 14+ ; 0.3 CU for children under 14.

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The share of disposable income not used for consumption expenditure constitutes savings. The saving ratio is household saving divided by gross disposable income.

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Individual households are persons living in independent dwellings. The term therefore excludes persons living in institutions, such as boarding schools, young workers’ hostels, retirement homes, and prisons.

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Bibliography