In the expenditure approach of GDP calculation, why are government employee's salary counted under Government approach while for private firms, we don't count salaries. I am unable to understand if there is asymmetry and if yes, then why?
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1 Answer
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The expenditure measure of GDP counts final expenditure, i.e. consumption by individuals and government and foreigners (exports) plus all capital formation (i.e. investment), and then subtracts imports since that part of final expenditure is not satisfied by domestic production.
The salaries of government employees count as government consumption in the same way as the government's purchase of services from private companies also count as government consumption. So the effect of paying for this work is the same whether the individuals are employees or contractors.
