What can cause disparity between the actual GDP/GNP and the reported GDP/GNP?

Question

What can cause disparity between the actual GDP/GNP and the reported GDP/GNP?

Answer 1

GDP and GNP are measured, and you have to know where the data come from to identify the discrepancies. The figures generally come from tax database — the best reason to collect those; tax don't take into account many things, and that's your wedge.

Friendly exchanges, or services inside a household are an open question. The most classic example is restaurant: having a lunch at home is not that different then ordering it outside — but only the latter is accounted for: more eating out will inflate GDP without increasing real production; same for laundry, babysitting (and more intimate things in Nevada). How this should be measured is a debated point: not included, at market prices, or at the salary of the performer (and whenever B. Clinton washes the dishes, it's worth a fortune).

Another issue is illegal transactions: drug consumption might not be considered part of the real output of a country, but otherwise legal products bought on the black market constitute a discrepancy: pharmaceuticals, razor blades, DVDs are classic examples. Several countries actually include estimates of those in published GDP, based on Police reports.

There are many more issues regarding accounting practices: over- or under-reporting your investment, its wearing-out, etc. Recent concerns have emerged on two similar problems: over-estimated house-market and the ‘good-will’ or ‘fair-value’. You are probably familiar with the housing bubble; may companies, to look profitable or because they are banks and needed to be more accurate have included non-trivial assessment of their value, including their brand, expected commercial success. It sometimes makes sense: Coca-Cola is worth much more then its factories; it sometimes proves too optimistic, and constitutes a bubble, or a scandal.

Internal production, illegal trade and accounting methods are each considered to be around 10 to 30 % of the GDP, depending on the country.