Sample Two
The Official Cuban Measure of National Income
Background
In 2003 the Cuban authorities began to use a new measure for GDP that differs from the international standard method. In the Cuban measure, the value of freely provided government services are not measured at cost, as in the standard method, but by using an estimate of the market value of the services, which is higher.
The justification offered by the authorities for the different method of valuing freely provided services is that in Cuba the costs of these services are lower than in other countries. One reason for this is that no income tax is paid on state salaries. This means that the cost of labour in the healthcare and education sectors is understated (because, in effect, wages are paid net of tax), and therefore the value of these
services is understated if the standard methodology is used.
Impact on measurement of economic structure and performance
For the purposes of the Economist Intelligence Unit’s model (which is used to calculate risk ratings), we have made estimates of Cuban GDP according to the international standard method.
Nominal GDP. Our series, using our own estimates based on the available data for valuation of government consumption and services according to standard definitions, gives a level of nominal GDP of around 20% below that reported using the Cuban method.
Real GDP growth. The real increase in freely provided government services outstripped growth in the rest of the economy in 2003-07, with the result that the Cuban measure produces higher national income growth rates than the standard measure.
For 2003 the Cuban authorities announced GDP growth rates using both measures: for the standard measure it was 2.9%, but for the new Cuban measure it was 3.8%. Since 2004 the authorities have published national-income data based on the Cuban method only. The official growth rates given are 5.4% in 2004, 11.8% in 2005, 12.5% in 2006 and 7.5% in 2007. On the basis of the available information and using the standard GDP definition, we estimate GDP growth at 4.4% in 2004, 9% in 2005, 12% in 2006 and 6.5% in 2007. These estimates are subject to revision as more data becomes available.
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