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National Income
6.1 Definition of income

6.2 Source of income

- From performance of personal services
- From the impersonal services

6.3. Factors determining national income

-Quality and quantity of factors of production
- State of technical knowledge
- Political stability

6.4 Determinants of national income

- Gross national product (GNP)
- Net National Product ( NNP)
- Gross Domestic Product ( GDP)

6.5 Uses of National Data


The amount of money or its equivalent

received during a period of time in exchange
for labor or services, from the sale of goods or
property, or as profit from financial
Personal Income
Personal Income is the total income received
by individuals and households of a country
from all possible sources before direct taxes.
Disposable Income
The income left after the payment of direct taxes
from personal income is called disposable
income. Disposable income means actual
income which can be spent on consumption by
individual and families.
Sources of Income
Sources of income may be derived from three

a. the performing of personal services

b. From utilisation of property
c. Windfall gains
Source of income

Personal services Property Windfall gains

Labour Entrepreneur Capital Land

Wages Salaries Profit Interest Rent

Salary Profit
Personal services income

 Personal services income” is defined as any

income resulting mainly from an individual’s
personal efforts or skills.
 Examples of such income include salary and
wages, amounts received under labour hire
contracts and consulting income derived from
applying expertise.
 Personal services income does not include
income resulting mainly from or use of assets.
From Utilisation of Property
 Property is any physical or intangible entity that
is owned by a person or jointly by a group of people or
a legal entity like a corporation.

 The properties are classified into different types on

basis of their use and location. The properties are
majorly classified into Residential, Commercial, Hotels
& Resorts, Institutional, Industrial and Agricultural.

 Example of such income included Profit, Interest and

rent received from utilization of property
Windfall gains
A windfall gain (or windfall profit) is any type
of income that is unexpected.
The list of windfall gains includes
• Gains from demutualization
• Unexpected inheritance
• Lottery winnings
People gained unexpected income from windfall
National Income
• National income is an uncertain term which is used
interchangeably with national dividend, national output
and national expenditure. On this basis, national income
has been defined in a number of ways. In common
parlance, national income means the total value of
goods and services produced annually in a country.

• In other words, the total amount of income accruing to a

country from economic activities in a year’s time is
known as national income. It includes payments made
to all resources in the form of wages, interest, rent and
• According to Marshall: “The labour and capital of
a country acting on its natural resources produce
annually a certain net aggregate of commodities,
material and immaterial including services of all
kinds. This is the true net annual income or
revenue of the country or national dividend.”

• In the words of Pigou, “National income is that

part of objective income of the community,
including of course income derived from abroad
which can be measured in money.”
According to Keynes
 “National Income may be defined as the
aggregate factor , income (i.e. earning of labor
and property ) which arise from the current
production of goods and services by the
nation's economy.”

 The nation’s economy refers to the factor of

production (labor and property) supplied by
the normal residents of the national territory.
Per-Capita Income
Per-capita income of a country is derived by
dividing the national income of the country
by its total population .
Per-Capital income of 2013= National income of 2013
Total population of 2013
Factors determining national income :

There are many factors which determine the size of the national

income. They, in brief, are as follows:

1. The stock of factors of production: 

One of the very important factors which influences the size of the
national income is the quality and quantity of the country's stock of
factors of production. The factors of production are land, labor, capital
and organization.
a. Land
Land supplies man with gifts of nature. It provides agricultural goods
and raw material for production. The production of land depends upon
fertility of the soil, latitude, climate and irrigation system in the country.
If the land is fertile and is not handicapped in any way say by salinity,
water logging, shortage of rainfall and adverse climate, the size of the
national income will be quite large, if the quality of land is poor, the size
of the national income will be small.
b) Labor: 
The second factor of production, i.e., labor is by no
means less important. This can be judged from it that
if land is not aided by human labor, it cannot produce
anything except the wild vegetation. The size of the
national income greatly depends upon the quality
and quantity of labor in the country. If the labor is
efficient and its size is consistent with the means of
subsistence, the size of the national income will be
large and if the labor is underfed, under clothed and
under-housed unskilled, and has no ambition to rise,
the size of the national income will be small.
c) Capital: 
The volume of production is also very much influenced
by the quality and quantity of capital available in the
country. Capital now-a-days is considered to be the
lifeblood of the modern industry. If the capital consists
of primitive tools, the size of the national income
cannot be  large. But if modern types of plants are
used for production, then they can enhance the
productive capacity of a country.

d. Enterprise: 
The size of the national income also greatly
depends upon the number and skill of the
entrepreneurs. If the captains of the
industries are efficient, they will combine; the
various factors of production to the optimum
proportion and so the volume of total
production will be quite large, if managerial
skill is lacking in the country, the size of the
national income will be sm.all
2. State of technical knowledge: 
State of technical knowledge is also one of the very
important factors which influences the size of the national
income. The methods of production now-a-days have
become so much roundabout that unless advance
technical knowledge is available in the! country, they
cannot be adopted. The roundabout methods of
production have considerably increased the production
capacity of the country. If the state of technical knowledge
is poor in the country, the size of the national income will
be small, but if advance technical knowledge is available,
then the size of the national income will be large.
3.Political Stability: 
Political instability greatly hampers economic
progress. If there is political stability in the
country, the production can be maintained at
the highest level. The size of the national
income will be large. In case of political
instability, the production will be adversely
affected and so the size of the national income
will be small
Income and distribution of national income in Nepal

Meaning: National Income refers (Public revenue) refers to

the income of the government from various sources.

 In the early days of human civilization ,the role of

government was limited. There were limited population and
they had limited needs and demand to be fulfilled. As time
passed population increased substantially. Human needs and
demand go on expanding. Along with the increase in public
need the role of government also increased subsequently in
different sectors of economy. Government of the twenty-first
century have to carry out various tasks to maintain economic
stability ,to attain high economic growth and to maintain law
and order in the country. In order to carry out these tasks it
has to collect income from different sources.
National Income collects from different sources these are
1. Tax revenue
Tax is the major sources of national government revenue.
These are:

a. Customs
It is collected at customs points located at the boarder of
the nations. It includes income obtained from import and
export duties imposed by the government on goods and
services. The amount of income from customs depends
upon the volume of export and import. Nepal Government
collects customs from the customs points (China& India
boarder and Tribhuwan International Airport).
b. Tax on consumption and production of goods and services
The government impose various types of direct and indirect
taxes on goods and services. It includes income through value
added tax, sales tax, contract tax, road tax,hotel tax,vechile
tax. This is the largest source of government income.

c. Land ,house and registration tax

Land revenue and house registration is a direct tax because it
cannot be shifted to others. It is a major and regular source of
income of a government. The government charges certain
amount as direct taxes on land and house registration.

d. Tax on property, profit and income
These types of taxes are also direct. They are
obtain from income tax, urban house tax,
personal income tax, rent tax and interest tax.
These are the tax sources of government
revenue, accounting for about 80.15% of total
government revenue.

2. Non taxes sources
Mainly the non tax revenue constitute the following
a. Grants and gift
The fund provided by an individual institutions or a
country to the government voluntarily for the welfare
of common people is known as grants or gifts. The
amount of donation provided to the government or
an institution for the people suffering from natural
calamities such as flood, landslides, earthquake and
famine are some examples of this kinds of revenue. It
is voluntarily in nature therefore it is not necessary to
refund such amount.

b. License and permit fees
Fee means the amount raised by the government for
services rendered in the field of
education,training,registration.Here we include firm
registration fee, agency registration fee, vehicles
registration fee, export –import license fee,examination fee,
passport fee, visa fee, trekking fee, various administration
charges and the government collects some amount of
revenue from the distribution of license for
gun,pistol.Similarly the amount collected by the
government while giving permission to mountaineering
expedition, national park visit, zoo visit,museum visit are
defined as permits or royalties.
c. Fines and penalties
A fine is a monetary punishment imposed by the
government for the violation of law and order
by its citizens. The additional amount charged
on delay of paying telephone bills, water bills,
electricity bills, licensed renewal fee within the
fixed time are examples of such fines. Likewise
the amount to be paid for violation of bond is
called penalties. Fines and penalties are
imposed to prevent the repetition of mistakes.

d. Escheats
The claim of government property on the death
of a persons who does not have legal heir is
called escheats. The bank deposit not claimed
by anyone or the property of dissolved
organization also fall under escheats.

e. Special assessment or betterment levy
The amount paid compulsorily or voluntarily to
the government for the services of road, bridge,
drinking water, telecommunication by the local
people is known as betterment levy.

f. Income from public properties and public enterprises
The amount of income that the government collects
from the sale of its own goods and services and the
income from the public corporation falls under this kind.
The income earned by Nepal government from,
National museum,Dasarath stadium, Birendra
International conference, city hall etc are some

g. Foreign Grants
A government may receives grants from foreign
government and institutions for development
programme,security expenses, and to meet
even regular expenses. It occupies a large
percentage of shares in regular budget of
developing nations. It may not be a major
sources of revenue to developed countries but
it is an important source for developing
countries like Nepal
Public Expenditure ( Distribution)

 The role of public expenditure is steadily increasing due

to growing responsibilities of public authorities. Its role
is greater in developing countries is to achieve high
economic growth and establish economic stability.

 Public expenditure of a country is distributed under

various heads . Among them two heads of classification
are given below.
1. Regular or Administrative Expenditure
2. Development Expenditure( Capital)
1.Regular or Administrative Expenditure
a. Constitutional organs :
It includes the constitutional organs like supreme
court, auditor generals office, election commission,
Public service commission, Attorney general office and
parliament secretariat.
b. General Administration
It includes the expenditure on council of ministers,
various ministries, various department, district
administration, police force,armed police force and
expenses on jails.
c. Revenue administration
It includes the expenditure made on collection of
land,revenue,customs by the revenue
d. Economic administration and planning
It comprises the expenditure made by the
National Planning commission,central bureau of
statistics and department of Metric
measurement to perform their activities.

e. Judicial administration
It includes the expenses required to court and
judicial commissions.

f. Defense
It constitute expenses required for national security
for the purpose of defense.

g. Social services
It includes expenditure on education, health drinking
water, local development and other social services.
h. Economic services
It includes expenditures on agricultures,irrigation,land
icity and other economic services.

i. Loans and investments

It includes the expenditure made by government for loans to
foreign country and making investment in productive
business organisation
j. Loans repayment and interest
It includes payment of principal and interest on loans
borrowed from different sources.
k. Miscellaneous
It includes travelling expenses of dignitaries and government
delegation, hospitality, pension,allowances,emergency help etc.

2.Development Expenditure
Development expenditure is also known as capital expenditure. It is
related to long term expenditure on development program.It falls
under the following heads.
a. Constitutional organs:
It includes the expenditure made on infrastructure development
of supreme court, election commission, officer of the auditor
general, public service commission etc.

b.General administration
It includes expenditure made on administrative reforms
of government organizations.

c. Economic administrative and planning

It includes expenditure made on planning and
maintaining statistics of the nations.

d. Social Services
It includes the expenditure made on
health,education,drinking water and local development.
e. Economic Services
It includes expenditure made on
cation,transporation and electricity.

f. Miscellaneous
It includes expenditure made on miscellaneous and
contingency expenses.

6.4 Determinants(Concept) of national income

- Gross national product (GNP)

- Net National Product ( NNP)
-Gross Domestic Product ( GDP
Gross Domestic Product

• The total value at market prices of

final goods and services produced
within the domestic boundary of a
territory in a specified period.
Featuresof GDP
• It is the money value of all final goods and
services produced within a country.

• GDP includes the value of only final goods and

services produced in a year. The intermediate
goods are excluded to avoid double counting.

• The value of final goods and services is

calculated at the current market prices
• GDP includes only those goods which have
market value and brought in the market for
• Transfer payment like pension, unemployment
allowances etc are not included in GDP
because these payments do not contribute
any way to production.
• GDP does not include capital gains.
What Is Counted in GDP?

GDP includes all items

produced in the economy and
sold legally in markets.
What Is Not Counted in GDP?

• GDP excludes most items that are

produced and consumed at home and
that never enter the marketplace.
• It excludes items produced and sold
illicitly, such as illegal drugs.
'Gross National Product
'Gross National Product – GNP’ An economic
statistic that includes GDP, plus Net Factor
Income. Net Factors income means any income
earned by residents from overseas investments,
minus income earned within the domestic
economy by overseas residents.
GNP can be expressed as following equation
GNP=GDP+ NFIA(Net Factor income from abroad)
Features of GNP

 It is calculated in monetary terms.

 It includes only final goods and services.
 The intermediate goods are excluded to avoid
double counting.
 It includes income earned by the residents of a
country within a country and abroad.
 It doesn't include capital gains and transfer
 It includes only those goods which have market
value and brought in the market for sale.
Net National Product (NNP)
• Net National Product (NNP) is the total
income of the nation’s residents (GNP)
minus losses from depreciation.
• Depreciation is the wear and tear on the
economy’s stock of equipment and
GNP can be expressed as following equation
NNP= GNP-Depreciation
Uses of national income statistics (Data)

National income figures help governments in

planning, policy making, preparation of budgets
and forecasting the level of economic activity.

 Formulation of economic policies: National

income statistics are valuable instruments of
economic analysis and a guide to economic
policies to be pursued. It is more useful in
context of planning and formulation of realistic
 Studying economic structure: It gives an idea of the structure
of the economy. It helps to make inter- sectoral comparisons
and to study the rate of growth of the economy. The growth of
national income is an index of the growth of the productive
capacity of an economy.

 Useful in estimating per capita income - Per capita income is

obtained by dividing national income by total population of the

• Inter- sectoral comparisons: it helps to study inter-sectoral

growth. Such comparisons are useful. Share of various sectors
can be studied to find out structural defects and weaknesses of
the economy.
 Making international comparisons: National
income estimates enables us to make
international comparisons and standard of
living of people.
  Contribution to international institutions: it
shows the capacity of a country to bear some
common burden of international institutions
like the U.N.O.