Adjusting the consumer price index for changes of the rates of indirect taxes and subsidies

Article type: Research Article

Authors: Balk, Bert M.¹ | Donkers, Harry W.J.²

Note: [1] Bert M. Balk was born in 1947. He graduated in mathematics from Leyden University in 1971. Having fulfilled his military service he entered the service of the Netherlands Central Bureau of Statistics. Currently he is chief of the research division of the department for price statistics. He is the author of several papers on the theory of price indices.

Note: [2] Harry W.J. Donkers was born in 1947. He graduated in econometrics from Tilburg University in 1975. Currently he is working as chief of the division for price analysis at the department for price statistics of the Netherlands Central Bureau of Statistics. He is the author of a monograph on methodology and application of price analysis.

Abstract: The Netherlands Central Bureau of Statistics adjusts the price index of final consumption expenditure of households for changes in the rates of price increasing taxes and price decreasing subsidies. The adjusted series is used for the inflation correction of wage and income tax and for purposes of wage indexation. Taxes and subisidies have a direct and an indirect influence on the price index. The direct influence operates through the commodities included in the price index. The indirect influence is exerted through intermediate consumption in the production of commodities included in the index. There is a further influence through depreciation of investment goods. The adjustment formulae used are adapted to the taxes or contributions of taxes applicable to specified commodity groups. In this respect the base on which the taxes are levied or the subsidies are granted is of importance. A distinction is made between taxes and subsidies levied c.q. granted on the basis of either value or quantity. For the purpose of defining indirect influence, input–output analysis is used. The corresponding adjustment factors are calculated by taking into account the cumulated shares of the taxes and subsidies of total consumer expenditure in the base year, the rates and rate changes of the taxes and subsidies and the adjustment factors calculated for assessing the direct influence. Finally, the adjusted price index is calculated after combining the various individual correction factors.

DOI: 10.3233/SJU-1982-1203

Journal: Statistical Journal of the United Nations Economic Commission for Europe, vol. 1, no. 2, pp. 157-170, 1982