19.04.23

A. Vanoli:Accounting for military activities in peace-time and war-time: Is war a process of economic production?

Philippe Stauffer

29th IARIW ConferenceSession 7 A SNA (2)

Swiss Federal Statistical Office

19.04.23

Military Expenditures: A brief history of treatments

Pre-SNA 68 Final consumption expenditure of government

SNA 68 Intermediate consumption of government

SNA 93 1. Gross fixed capital formation (GFCF) when

similar goods are potentially used for civilian

purposes.2. Intermediate consumption of government for

all other goods.

AEG proposals 1. GFCF for goods which can be used

repeatedly and continuously in production.2. Inventories for goods which are used only

on a single occasion.

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Arguments in favor of treating military expenditures as GFCF

Normative character of treatment in SNA 93 not clear to users.

Treatment inconsistent with international accounting standards.

Weapons:

1. provide a nation with economic benefits (protection of liberty and property).

2. provide defense services.

Treatment must be similar for equipment used by military forces and private bodies in charge of security.

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Implications of AEG proposals:

1. Different nature of contribution of military expenditures to output and final consumption expenditure of general government.

2. Higher value added for general government and GDP.

3. Higher net saving of government.

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Arguments of A. Vanoliagainst the AEG proposals

1. Analysis must be based on what military activities are in time of war.

2. Military equipment and weapons are not economic assets engaged in a process of production. They are political assets.

3. Confusion between output and outcome.

4. Not all assets are economic assets.

5. Not all assets have to be treated in a uniform way in the system.

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Alternative treatment proposed by A. Vanoli

1. All military expenditures should be considered as final consumption expenditures

2. A notional government sector should be introduced

3. A satellite account should be created

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Questions to the author (A. Vanoli):

1. What about the argument that the vast majority of military equipment is not engaged in acts of combat ?

2. What about the analogy with the public or private sector (police forces and criminal justice system), where deterrence is considered as being the output ?

3. Is the fact that military equipment can be resold not an clear indication that these equipments are economic assets ?

4. What is the use of a satellite account in this context ?