Thursday, June 27, 2013

Did GDP Numbers Underestimate Growth

Matthew Yglesias notes the downward revision of U.S. GDP but argues that because GDI was stronger, the GDP number may underestimate growth.

However, as it happens, income numbers were actually weaker than the spending numbers as net factor income from abroad fell significantly for the second quarter in a row.

Yglesias furthermore assert that incomes during Q4 2012 were boosted artificially as some salary and dividend payments were made in advance to evade the higher 2013 tax rates. But Yglesias here reveal his ignorance about national accounting. Higher dividend payments don't affect national income as the level of retained corporate earnings is reduced by the same amount, and similarly advance salary payments will reduce corporate profits by the same amount.


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