**4. Studying the effects of the increase of households' income with two different origins**

In the Introduction, it was defined that the purpose is to study the impact of the introduction of a social policy measure of the increase on households' income, on the socio-economic activity of a country, and on the associated institutions' income. Social policy measures are usually implemented by the Government through current transfers to households, namely, through the social security system. In our application, as was seen in the previous section, the current transfers from the Government to households represent 19.1% of the total.

However, because it is important not to neglect the indisputable role of the generated (or gross national) income received as compensation of factors of production, representing 73.8%, our study also includes a simulation with the increase in the compensation of labour, that is, the compensation of employees, which is the main component of generated income, representing 47.7% of that total (see **Table 2**).

Therefore, to study the effects of the increase of households' income, two scenarios are constructed according to the origin of the increase. Both scenarios involve increases of 5% of households' aggregate income: one with its origin in the current transfers, from the Government to households, and other in the compensation of labour, received by the households.

Our SAM-based approach also involves an algebraic version of the SAM presented in Subsection 2.1, with the disaggregation described in Section 3. This version or model allows the calculation of accounting multipliers, whose methodology is described in ([11], Section 5.1). According to that methodology, in both of the abovementioned scenarios, the rest of the world and the capital and financial accounts were set as exogenous. The current account of the Government was also set as exogenous in the scenario that involves the increase of current transfers, and the (factors of production) labour in the scenario that involves the increase in the compensation of labour. From SAMs organised into endogenous and exogenous accounts, the accounting multipliers calculated represent quantitative approximations of the effects of unitary changes (positive or negative) on the income of endogenous accounts, *ceteris paribus*. These approximations were then applied to increases of 5% of households' aggregate income (8251 million Euros) and new SAMs, and the corresponding macroeconomic aggregates and balances were then calculated.

Therefore, the impact of an increase of households' aggregate income depends not only on its amount, but also on its origin. **Table 4** shows the different impacts that the same increase of

**Table 4.** Percentage changes resulting from the impact of the 5% increase of households' aggregate income.

**Origin of the increase of households' income**

**Compensation of labour**

11

http://dx.doi.org/10.5772/intechopen.78602

**Current transfers, from** 

Using a Social Accounting Matrix for Analysing Institutions' Income: A Case from Portugal

**Government**

Households 3.48 8.14 Government — 4.16 Other institutions 3.32 3.84

Households 7.77 7.33 Government — 5.79 Other institutions 3.68 4.37

Households 7.77 7.33 Government — 5.79 Other institutions 3.68 4.37

Households 7.77 7.33 Government — 5.79 Other institutions 3.68 4.37

Households 7.77 7.33 Government — 5.79 Other institutions 3.68 4.37

Gross domestic product (GDP) 3.58 4.14 Gross national income Total (GNI) 3.47 6.87

Disposable income Total (DI) 3.35 6.64

Gross saving Total (S) 4.95 5.03

Aggregate income Total (AI) 8.30 6.52

Final consumption Total (FC) 5.99 6.92

Thus, at the level of totals, the increase with origin in the compensation of labour has a greater

At the level of institutional sectors, it is not possible to make any comparison for the Government because in the first scenario its account is set as exogenous, which prevents the identification of changes in some of the corresponding components. In turn, for households, the scenario with the increase with origin in the compensation of labour is only favourable for generated

5% in households' aggregate income has according to two different origins.

impact, except in the case of aggregate income.

Source: Own calculations.

**Table 4** summarises the impact of these scenarios using percentage changes of the macroeconomic aggregates and balances and data regarding aggregate income and final consumption. These changes were calculated from the earlier described calculations, and these are provided in Section 2.


income are included. In turn, the Government uses almost equal shares of its aggregate income in final consumption (48.7%) and current transfers to households (47.1%), in which social benefits are included. Both for households and for Government, all the other items

In the Introduction, it was defined that the purpose is to study the impact of the introduction of a social policy measure of the increase on households' income, on the socio-economic activity of a country, and on the associated institutions' income. Social policy measures are usually implemented by the Government through current transfers to households, namely, through the social security system. In our application, as was seen in the previous section, the current

However, because it is important not to neglect the indisputable role of the generated (or gross national) income received as compensation of factors of production, representing 73.8%, our study also includes a simulation with the increase in the compensation of labour, that is, the compensation of employees, which is the main component of generated

Therefore, to study the effects of the increase of households' income, two scenarios are constructed according to the origin of the increase. Both scenarios involve increases of 5% of households' aggregate income: one with its origin in the current transfers, from the Government to

Our SAM-based approach also involves an algebraic version of the SAM presented in Subsection 2.1, with the disaggregation described in Section 3. This version or model allows the calculation of accounting multipliers, whose methodology is described in ([11], Section 5.1). According to that methodology, in both of the abovementioned scenarios, the rest of the world and the capital and financial accounts were set as exogenous. The current account of the Government was also set as exogenous in the scenario that involves the increase of current transfers, and the (factors of production) labour in the scenario that involves the increase in the compensation of labour. From SAMs organised into endogenous and exogenous accounts, the accounting multipliers calculated represent quantitative approximations of the effects of unitary changes (positive or negative) on the income of endogenous accounts, *ceteris paribus*. These approximations were then applied to increases of 5% of households' aggregate income (8251 million Euros) and new SAMs, and the corresponding macroeconomic aggregates and balances were then calculated.

**Table 4** summarises the impact of these scenarios using percentage changes of the macroeconomic aggregates and balances and data regarding aggregate income and final consumption. These changes were calculated from the earlier described calculations, and these are provided

households, and other in the compensation of labour, received by the households.

identified as destinations of income have a residual or non-existent meaning.

transfers from the Government to households represent 19.1% of the total.

income, representing 47.7% of that total (see **Table 2**).

**two different origins**

10 Sustainability Assessment and Reporting

in Section 2.

**4. Studying the effects of the increase of households' income with** 

**Table 4.** Percentage changes resulting from the impact of the 5% increase of households' aggregate income.

Therefore, the impact of an increase of households' aggregate income depends not only on its amount, but also on its origin. **Table 4** shows the different impacts that the same increase of 5% in households' aggregate income has according to two different origins.

Thus, at the level of totals, the increase with origin in the compensation of labour has a greater impact, except in the case of aggregate income.

At the level of institutional sectors, it is not possible to make any comparison for the Government because in the first scenario its account is set as exogenous, which prevents the identification of changes in some of the corresponding components. In turn, for households, the scenario with the increase with origin in the compensation of labour is only favourable for generated income, that is to say, GDP and GNI, whereas for other institutions, this scenario is generally more favourable.

of the institutions' income. In turn, for the study of the effects of a social policy measure of the increase in households' income, it is also possible to conclude that, on the one hand, households and the Government in this (current) account could also be identified, and, on the other hand, the labour in the factors of production account can be identified. From this disaggregation, the origin and use of the aggregate income of institutions, namely, of households,

Using a Social Accounting Matrix for Analysing Institutions' Income: A Case from Portugal

http://dx.doi.org/10.5772/intechopen.78602

13

Regarding the origin of income, the compensation of labour is the source of about half of the households' income, with the current transfers from the Government representing a little less than a quarter of the same. In turn, current transfers from households are the source of more than a half of the Government's income, with net taxes on production and imports of more of

With regard to the use or destination of aggregate income, households use much more than a half of the same in final consumption and just under a quarter in current transfers to the Government, in which the taxes on income are included. Final consumption and current transfers to the households, in which social benefits are included, are the destination of almost

From this knowledge of the structure of origin and destination of the aggregate income, it was possible to achieve the purpose of studying the impact of the introduction of a social policy measure of the increase on households' income, on the socio-economic activity of a country, and on the associated institutions' income. Therefore, on the one hand, having identified the two main sources of the aggregate income of households, the need for two scenarios was also identified. On the other hand, the identified structures of the origin and use of income, together with the network of linkages that underlie the SAM framework, allowed for a better

From the results of these scenarios, it was possible to conclude that the effects of increases in the households' income depend on its origin and the corresponding multiplier effects, which are in turn influenced by the structure of the use of this income. These effects may be more favourable for a specific group or sector, but less so for the whole economy, as shown in our

Accordingly, changes (increases and decreases) in the institutions' income, especially in households' income—resulting from social policy measures, or not, directed to specific groups, should not neglect the corresponding structures of origin and use, as well as the macroeconomic impact of the same. To this end, the SAM-based approach introduced in this

The financial support from national funds by FCT (Fundação para a Ciência e a Tecnologia) is gratefully acknowledged. This paper is part of the Strategic Project UID/ECO/00436/2013.

all the aggregate Government income, each of which by almost a half.

understanding of the effects portrayed in each of the scenarios.

the Government, and other institutions, is studied.

a quarter of the same.

application.

chapter is a possibility.

**Acknowledgements**

Higher levels of disaggregation, namely of the households, would be needed to find out more about these effects; however, from this very simple approach, although with many limitations, two main ideas should be emphasised regarding the impact of possible changes (increases and decreases) in the institutions' income—resulting from social policy measures or not. First, the origin of these changes is not indifferent, either for the target they are intended to achieve, or for the rest of the economy. Second, changes in income directed to specify groups should not neglect the corresponding multiplier effects for which the structure of the use of that income should be considered.
