Financial Output as Economic Input

Jacob Assa
Written By SCEPA

WORKING PAPER

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This paper investigates the inconsistent treatment of financial services in the national accounts.

While net interest income from financial intermediation is netted out as input to other industries and thus does not affect the overall level and trend of Gross Domestic Product (GDP), fee-based net income from financial services is included as value-added, inflating GDP by the same amount. A new measure of economic activity which resolves this inconsistency is introduced, treating all financial income as a cost or intermediate input to the rest of the economy.

SCEPA
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