Disposable and discretionary income

Disposable income is a concept of national accounts. It refers to the part of the income of private households is mainly for private consumption are available.

Term history

1949 Clarence L. Barber described anomalies which were not included in the concept of disposable income previously used and ill-defined. Amortization expenses at this time only as a part in the overall savings picture of gross saving rate and could not be distinguished from income. This was particularly true of agricultural income as well as income from the property sector and the owner-occupied homes.

Gross rental income were recorded as final consumption, but the associated write-downs were excluded from disposable income. This meant that the depreciation of Agriculture and residential property together accounted for approximately one third of the volume of total amortization of the pre-war period. Since many people saw this revenue as income, they saved less than would have been total economically necessary.

For disposable income further included the net changes in agricultural supplies. These usually were not for spending available. Many farmers sold their stocks were doing the same revenue as by other sources of income. At the time it was the accumulated stock of a farm is not considered income for spending.

In the above table, two important forms of saving are presented. Savings from disposable income before and after the adjustment to the net change in operational stocks are represented by the visualization of the ascending and descending on the marginal propensity to save and to follow the adjustment to the net changes in inventories during the war. The investment income of life insurance was between the investor and the insurance company that einbehielt their share split. The detection methods represented the proportion of the gross national product that was suitable for disposable income, inadequate dar.

Calculation

Newer methods of calculation are trying to factor recognized, as follows:

This example illustrates the gradual approach, with data for the year 2007

If the consumption of the households of the state, as well as the investment and foreign trade contribution added, creates mathematically GNI at market prices.

The gross national income at market prices, the contributions to the means of production are included. In the capital market influent is subtracted because only the values ​​are recorded, which flowed into the economy. The difference is the net national income at market prices, which is identical to the sales revenue of the company.

To calculate the national income, indirect taxes have to be deducted and subsidies are added to it. The taxes required by the state to finance its expenditures, which are included in the market prices, are, for example: mineral oil, alcohol tax, tobacco tax, and VAT. As part of government policy structure the company will receive subsidies. It is income components that are not included in the net national income, which is why they need to be added to it. Transfer payments, by means of which the State intervenes in the income distribution mechanisms to promote the policy goal of improved social justice, flow to mainly private households.

From the private income direct taxation of enterprises are deducted. This as well as the social security contributions paid by employers reduce private income and accrue to the State as an additional income. Undistributed profits accrue to the capital market. That is a part of the private income is used for investment. Also the capital market flows to household savings. These savings are for investment purposes.

Another form of consumption is in final consumption expenditure of households. These are purchases for final consumption.

Consumption decision

The consumption decisions of individuals depend significantly on the disposable income, because an increase of these freely available size stimulates the propensity to consume. Therefore, the consumer can be described as a function of disposable income.

Economists see because of this close relationship of these two variables, a specification before:

This relationship is described linearly. That rising disposable income rises, so does consumption.

C0 says the simplicity, how much is consumed when the disposable income in year zero, would be zero. Then, the equation would be as follows:

C1 indicates the additional advent of disposable income. That is, would the c1 value 0.5 then assume would increase consumption by 1 € * 0.5.

Can from the following consideration in whether or not a macroeconomic model with a linear relationship, to deduce the impact of disposable income on consumption. An important assumption is that the disposable income is entirely spent on consumption. Especially in situations of economic instability has been shown that the economic agents spend but save the greater part of disposable income not for consumption purposes.

Vergleichbarkeitsproblem

Despite inadequate statistical data is often sought to compare the wealth of the countries on the basis of disposable income. The percentage of disposable income in the gross domestic product would vary from country to country due to the residence -based findings and differences in depreciation, transfer, primary income, government activities and foreign trade balances are not considered in this analysis. The economic role of the public sector is mainly in countries with high government spending ratio, such as Finland and Switzerland, of importance. The disposable income is not a suitable measure to measure regional prosperity.