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General Problems Associated with the Calculation of the National income

(i) Double counting:

Capital goods are goods bought for the purpose of further production while consumer goods are goods bought and consumed immediately. Double counting occurs when the cost of capital goods are included in the cost of the final product. This leads to overstatement of the national income figure. In Nigeria, and other West African countries, the value of some of the capital goods or raw materials are included in the value of the finished product. This tends to inflate the figure of the national income or Gross Domestic Product.

(ii) Inflation:

Inflation leads to changes in the value of the national income estimates which makes it difficult to meaningfully compare the estimates of the NI of one year with that of another, especially when the rate of inflation is extremely high.

(iii) Inadequate data:

In Nigeria, and other West African countries, many self-employed individuals rarely keep records of their income and expenditure, even where these are kept, they are falsified in order to pay less tax.

(iv) Transfer Payment:

These are a part of income earned but given out as gifts to others, hence, treating them as income to recipients will inflate the national income figure. This is income not earned as a result of participating in the production process,    therefore it cannot be treated as part of the national income.

(v) Depreciation:

Failure on the part of many firms to ascertain the actual life span and the wear and tear depreciation on their fixed assets make it difficult to compute an accurate figure for the national income.

(vi) Product and service not paid for:

Some goods and services are continuously being produced and rendered free of charge. These include the services of a housewife, children, one’s relations, etc., services rendered to oneself, e.g. dressing your own hair, and goods produced by a fashion designer for herself or a farmer’s products consumed by himself. The non-inclusion of the value of these goods and services affects the accuracy of the National income of a country.

(vii) Non-payment of rent by Owners living in their Houses:

The non-payment of rent by owners-occupied houses reduces the national income figure greatly. This is made worse by the fact that there is no accurate or reliable statistics on these types of houses, which makes it difficult to accurately estimate the rent that would have been earned by their owners as income.

Payment in Kind:

This is very common among the farmers in the rural areas. Farmers sometimes work on each other’s farm in exchange for farm products or a parcel of land to farm on. In other instances, a farmer will work on another’s farm in exchange for similar services rendered on his farm. The value of such services, or products given, in return for work done, is not included in the calculation of the national income.