Are you confused about the difference between domestic income and national income?
Domestic income refers to the total income earned by individuals and businesses within a country’s borders, while national income includes income earned by domestic residents abroad and excludes income earned by foreign residents within the country’s borders.
Domestic Income vs National Income
| Domestic Income | National Income |
|---|---|
| Domestic income refers to the total income earned by individuals and businesses within a country’s borders. | National income includes income earned by domestic residents abroad and excludes income earned by foreign residents within the country’s borders. |
| It is limited to income earned within the country’s borders, including wages, profits, rents, and taxes paid by residents and businesses within the country. | It includes income earned by domestic residents abroad, such as remittances, and excludes income earned by foreign residents within the country’s borders, such as wages of foreign workers. |
| Domestic income does not consider income earned by domestic residents abroad or income earned by foreign residents within the country. | National income takes into account income earned by domestic residents abroad, which could have an impact on the country’s balance of payments and international economic relations. |
| It includes only the income earned within the country, without considering the effects of international transactions. | It reflects the effects of international transactions, including net exports (exports minus imports) and net factor income from abroad (income earned by domestic residents abroad minus income earned by foreign residents within the country). |
| Domestic income is used for assessing the economic performance and welfare of individuals and businesses within the country’s borders. | National income provides a broader perspective for policy-makers to consider the impact of international economic activities on a country’s economy and formulate policies accordingly. |
| Data for domestic income is collected from domestic sources, such as national income accounts, surveys, and tax records. | Data for national income is collected from various sources, including domestic income accounts, balance of payments, international trade data, and surveys of domestic residents abroad. |
Introduction to domestic income and national income
Domestic income is the total income earned by residents of a country. This includes earnings from employment, investments, and other sources. National income is the total income earned by all citizens of a country, regardless of whether they reside within the country’s borders.
Domestic income only includes earnings from within the country’s borders, while national income includes earnings from both inside and outside the country’s borders. National income also includes government transfers, such as social security payments, which are not included in domestic income.
National income is usually measured before taxes, while domestic income is usually measured after taxes. This means that national income provides a better measure of a country’s overall economic activity than domestic income.
Components of domestic income
There are three key components of domestic income: personal income, corporate profits, and government revenue.
Personal income is the sum of all wages, salaries, interest payments, dividends, and other forms of compensation received by individuals from all sources within a country. It does not include transfer payments such as Social Security or welfare benefits.
Corporate profits are the earnings of businesses after taxes and other expenses have been deducted. They can be either distributed to shareholders in the form of dividends or reinvested back into the business.
Government revenue comes from a variety of sources including taxes, fees, and fines collected by federal, state, and local governments. It also includes transfer payments made to individuals and businesses such as Social Security benefits and unemployment insurance.
Components of national income
A nation’s income is composed of many different components, each with their own unique characteristics. The primary components of national income are wages and salaries, business profits, interest and dividends, and rent.
Wages and salaries make up the largest portion of national income, accounting for about 70% in most developed countries. This includes all forms of compensation paid to employees for their work, including regular salaries, bonuses, commissions, and tips.
Business profits are the next largest component of national income, accounting for about 20% of the total. This includes all forms of profit earned by businesses, including both small businesses and large corporations.
Interest and dividends make up a relatively small portion of national income, typically around 5%. This includes all forms of interest payments made by businesses and households, as well as dividends paid out to shareholders by corporations.
Rent is the final major component of national income, accounting for around 4%. This includes all payments made for the use of land or buildings.
Key differences between domestic and national income
Domestic income is the total income of all residents of a country. This includes money earned from wages, investments, and other sources. National income is the total income of all citizens of a country. This includes money earned from wages, investments, business profits, and other sources.
For example, if a company in the United States earns profits from its operations in another country, those profits would be included in national income, but not domestic income.
Another difference between domestic and national income is that national income includes money earned from activities that generate positive externalities. Positive externalities are benefits that spill over to people who did not directly contribute to them.
For example, education provides positive externalities because educated people are more productive citizens who contribute to society in many ways beyond their jobs.
- Difference between intermediate and final goods
- Difference between trade and commerce
- Difference between domestic business and international business
Methods to calculate domestic and national income
There are two ways to measure domestic and national income. Domestic income is the sum of all incomes within a country’s borders, while national income is the sum of all incomes earned by a country’s citizens, regardless of where they reside.
The most common method of calculating domestic income is the gross domestic product (GDP). GDP measures the value of all final goods and services produced within a country’s borders in a given period of time. It includes both public and private consumption, government spending, investments, and exports minus imports.
Another way to calculate domestic income is to use the gross national product (GNP). GNP measures the value of all goods and services produced by a country’s citizens, regardless of where they reside. It includes both public and private consumption, government spending, investments, and exports minus imports.
Income can also be measured by looking at household disposable income (HDI). HDI represents the total amount of money that households have available for spending after taxes and transfers from the government. This number can be used to get an idea of how much disposable income each household has available to spend on things like food, housing, clothing, transportation, etc.
Finally, personal disposable income (PDI) is another way to measure income. PDI represents the total amount of money that individuals have available for spending after taxes and transfers from the government. This number can give you an idea of how much each person has available to spend on things.
